GST rate cut to boost consumer durables sales this festive season
Chennai: Thanks to the GST rate cut, consumer durables, which have been witnessing a slower growth for the past six quarters, are expected to return to double-digit growth with the sentiments improving during the festival season.
The government reduced the GST rates of refrigerators, freezing equipment, washing machines, vacuum cleaners and television sets measuring less than 27 inches from 28 per cent to 18 per cent.
In smaller appliances, the rate cut is applicable to food grinders, mixers, juice extractors, storage water heaters, immersion heaters, hair dryers, hand dryers and electric smoothing irons.
“The rate cut is applicable for a few products. But this will build positive sentiment during the festival season and hence propel growth. Further, a normal monsoon and increased agricultural income would support growth,” said Kamal Nandi, business head and EVP, Godrej Appliances.
“It is a very positive move for us as our sales numbers in washing machines and televisions would pick up substantially. We have been waiting for this to happen and finally government has cut the rates from 28 per cent to 18 per cent,” said Vijay Manuskhani, MD, Mirc Electronics.
According to Nandi, the industry has been witnessing a slower growth of around 5 per cent during the past six quarters of disruptions.
Some of the categories have also witnessed stagnant growth in these quarters.
“For refrigerators and washing machines, we expect that the growth will return to the levels prior to the troubled quarters. The industry was growing at 12-15 per cent in those times. For other categories, the growth might be lesser but better. But overall we expect the consumer durable sector to grow by 10 to 12 per cent during the festival season,” he added.
The biggest beneficiary would be washing machines, which account for 18 per cent of the total sales in consumer durables. The festival season accounts for 20 to 25 per cent of the yearly sales of washing machines, said Eric Braganza, president, Haier Appliances India.
Refrigerators account for 45 per cent of the festival season sales. But for this category, summer too is a big season and it was a washout this time.
According to him, 80 per cent of the TVs sold are above 27 inch and hence the impact of rate cut will be limited for the category. Air-conditioner is the next big category sold during the festival season, but the rate cut is not applicable for it. Summer too saw ACs posting a negative growth in sales.
“The cost benefit for the customer with the rate cut from 28 per cent to 18 per cent will be around 8 per cent. We will pass on the entire benefit to the customers in order to improve sales,” said B Thiagarajan, joint managing director of Bluestar.
The industry has been reeling under the pressure of higher input costs and higher US dollar rates. Prices of most of the industrial metals have gone up and the dollar rates make the components costlier for the industry which is heavily dependent on imports. Diesel prices have gone up and so has inflation.
“GST is an opportunity for us to spur demand and hence we would are not looking at any further hike for the festival season,” added Nandi.
The government also had reduced the GST rate of paints from 28 per cent to 18 per cent and the paint too is a fast moving category during festival and wedding season.
“The Indian paint market is expected to reach Rs 70,875 crore by 2019-20 according to the Indian Paint Association. The reduction in GST will accelerate the expected growth. This step is a reprieve for the paint industry and its consumers as the high GST rate on paint had added to the consecutive price hike caused by a surge in the cost of raw materials, the last few years. This decision will augur well for the industry as the consumption will subsequently rise. Nippon Paint will reduce its prices in accordance with the revised GST rates to the benefit of the customers. This rationalisation of rates will potentially encourage sales to go up by 12-14 per cent in the decorative segment,” said Mahesh Anand, President – Nippon Paint India.