The budget 2017-18 is going to be unique in many aspects. It will be for the first time that Railway Budget will be merged with the General Union Budget, and will be presented a month in advance, i.e. on 1st February, 2017. GST all set to be implemented in July 2017 and the effect of demonetization still circling in the market, expectations with the budget this time around are considerably high as compared to previous years.
The past year started off with a promise of being one the most profitable financial year for the consumer durable industry in almost four years. Implementation of the 7th pay commission, good monsoon and increase in buying power of the citizens came as a goodwill bearer for the industry which further ascended its flow into the festive season. Though government's decision to ban the higher denomination currencies affected the ACE (Appliances and Consumer Electronics) industry to a large extent. A commendable decision with a motive to curb black money caused significant liquidity issues within the economy. For a sector which still operates 80 per cent on cash took a toll in its sales in the aftermath of the decision, 40 per cent to be exact. The move has affected the sector in the second half of the third quarter and might have withdrawal effects too. However, we expect the government to address this issue and implement relevant measures to minimize the impact of demonetization.
We anticipate the budget to reach on a consensus over some of the issues that have slowed ACE industry's growth for a sizeable amount of time. An industry which is a significant contributor to the economy is anticipated to register almost a 2X growth over the global growth average as reported by Frost & Sullivan in its Skilling for Durable India report 2016. ACE market is expected to reach Rs 192,847 crore in 2021 growing by a CAGR 10.1 per cent from 2015. Mobile handsets that are a key element to the industry is also facing limitations. First and foremost there is no clarity on the GST rates on mobile handsets which raises the question whether 'Make in India' initiative would still enjoy patronage under the GST regime as well. We hope the budget association is able to shed some clarity over the issue and expect it to reduce the CGST rate to 0 per cent applicable without input tax credit for domestically manufactured mobile handsets. Further, SGST at 5 per cent should be applicable at each stage which should be creditable (as under the present regime).
Additionally, in the previous GST council meeting the government elaborately placed the refrigerators, washing machines and other electronics of daily use in the 28 per cent slab rate under the goods and services tax. We expect the 2017 budget to thoroughly look into this decision and place the appliances under the 18 per cent slab and mobile phones under the 12 per cent slab rate, because an augmented GST rate will increase the tax burden on the goods which would be inflationary. Consumer durables and mobile handsets have become things of necessity rather a luxury.
Currently appliances such as microwave ovens, air conditioners, televisions, washing machines and refrigerators enjoy a BCD (Basic Customs Duty) rate of 10 per cent. To further elaborate the notion, these goods can also be imported as completely built units from ASEAN and SAFTA countries like Thailand and Japan at concessional rates of BCD ranging from 0-6 per cent. The practice has resulted in the erosion of the component supply base in India, since there was not enough domestic demand to be catered to by the component manufacturers and they could not reach economies of scale.
We are counting on the budget committee this time around to augment the BCD rate on ACE goods from 10 per cent to 20 per cent so as to discourage the import of these commodities and promote the idea of 'Make in India'. China has emerged as the World's largest producer and supplier of manufactured goods and components. China's scale of production is almost 7-10 times as compared to the level of production in the Indian market, they have also devalued their currency by almost 12 per cent in the last few months. The government of India previously increased the BCD rates within the automotive sector as well which further resulted in the increase of exports and global investment numbers.
Lastly, we are counting on the government to formulate on its decision on the imposition of SAD (Special additional duty) on populated PCB's and mobile handsets alongside phased manufacturing. This will help in promoting local electronic manufacturing in the country, thereby achieving the government's objective of 'Make in India'. Although the timeline for imposing the duty needs to be calibrated, we expect the duty to be withdrawn for a period of one year as lot of investments have been made in the interim period.
The writer is CEAMA's president