Will need to increase local sourcing, say players
With the Central government continuing with its strategy to hike customs duties in the latest Budget in a bid to boost domestic manufacturing, consumer durables and footwear companies said they are re-looking at their supply chains to step up focus on sourcing of components or parts domestically.
Kamal Nandi, President CEAMA and Business Head & Executive Vice President,Godrej Appliances, said, “Consumer durable brands will need to increase local sourcing, which will, in turn, encourage the growth of the component ecosystem and this will enable them to attain scale. The hike in the basic customs duty on compressors, used to make refrigerators and air-conditioners, is a step in the right direction to encourage development of the component ecosystem in the country in the long term.”
The government has decided to hike customs duty on compressors to 15 per cent from the earlier 12.5 per cent.
Manish Sharma, President and CEO, Panasonic India & South Asia, said, “We have been looking at increasing sourcing of components domestically. For compressors, we are in talks with vendors and will look at increasing sourcing to more than 40 per cent from the current levels of 20 per cent. The impact of the hike in custom duty on compressors will be about 0.5 per cent on the total bill of materials so there is a negligible impact on costs.”
However, players pointed out to challenges such as price disadvantages and insufficient capacities of components such as compressors in the country. About 15-16 million units of refrigerators and 5-6 million units of ACs are sold in India annually.
Eric Braganza, President, Haier India, said it may take 2-3 years for the country to have enough capacities for compressors to meet the demand of consumers durable firms that make ACs and refrigerators and so companies will need to rely on imports for sourcing compressors in the short-term.
Paresh Parekh, Partner & National Tax Leader, Retail Sector, EY, said sourcing structures for companies dependent on imports may have to be revisited and focus on sourcing India-made products is expected to increase with the hike in customs duties.
Meanwhile, the government has also hiked custom duties on certain leather parts and finished leather of all kinds to 10 per cent.
Harkirat Singh, Managing Director, Aero Club, known for brand Woodland, said, “We have already placed orders for the upcoming season so we don’t intend to pass on any cost increases to the consumers. At the same time, we are looking to reduce imports of parts by 30-40 per cent this year by looking at alternatives and ramping up local sourcing.”