India's lockdown in Q1 of FY21 did have a significant impact on the GDP which contracted an unprecedented 23.9 percent. However, over the last few months, macroeconomic indicators are showing signs of recovery. RBI also predicts that the economic shrinkage is over and GDP will grow in the next few quarters. The government continues to show commitment towards introducing long-due reforms leading to ‘Ease of Doing Business,’ making India ‘AtmaNirbhar’ by promoting ‘Make in India’ initiatives aggressively.
With this backdrop, we strongly believe that the consumer durables and electronics industry has the potential to help our economy recover faster. And, our expectation from the Union Budget 2020 is to see reforms that drive consumption and improve consumer demand.
During the upcoming budget session, I would urge the government should consider rationalization of tax rates on certain consumer durable electronics such as Air Conditioners (ACs) and Television (TVs). These are no longer ‘luxury’ items and have become common and essential household. The energy efficiency of air-conditioners has steadily increased and they now offer added features such as air-purification which is important in urban areas. Lowering the tax slab to 18% from 28% would help offset the price pressure and spur demand for both Air Conditioner (Split and Window) and Television (above 68 cm), thereby improving affordability among customers, attracting investments in component manufacturing, and help in penetrating deeper into the market, especially for the AC category.
For manufacturers, reforms like the reduction of corporate tax and introduction of the Production Linked Incentive (PLI) scheme were welcomed and it displays the government’s intent to promote healthy backward integration and provide impetus to domestic manufacturing while elevating India's position as a global manufacturing champion. To ease supply chain challenges, I would urge the Govt to consider the ‘One Nation, One Permit, One Tax’ system for a seamless and efficient road transport experience.
The continuous tightening of the energy norms, upping the R&D and material cost, put upward pressure on prices for energy-efficient products, further dampening the consumer sentiments. Lowering the GST tax slabs for eco-friendly and energy-efficient products like Air Conditioners, Refrigerators, Washing Machines, etc. will drive demand and increase the adoption of sustainable appliances by consumers. The upcoming budget should additionally offer incentives for manufacturers to produce these energy-efficient products which will be in line with the government's sustainability agenda.
From a consumer perspective, increasing the deduction under Section 80C to 3 lakhs from current levels of Rs 1.5 lakhs will help reduce the tax burden giving more spending power to people.
We are highly optimistic about the upcoming budget and expect it to usher in a balanced combination of reforms and regulations, which will, in turn, boost the ACE industry, contributing positively to India’s growth story.
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