The appliance industry was expecting significant sops to propel the growth, which has been sluggish throughout the year on account of exchange impact, inflation impact, hardening interest rates, dipping demand and excess capacities. The industry had made a representation to the government through CEAMA and CII. The pre-budget indicators had also raised the expectations.

Excise Duty: In today’s budget, the announcement of reduction on Cenvat across the board from 16% to 14% has been welcomed by all. The appliance sector was expecting it to come down to at least 12%. As in the automobile sector, where the Finance Minister has given a 4% drop in excise duty for two-wheelers, three-wheelers and small car segment, we were expecting a similar fillip in the lower segment of the durable industry to drive penetration in tier-2, tier-3 and rural markets which have lagged behind the urban markets in terms of growth rate for the last so many years.

Looking at the issue from another angle, there is an increase in the cost of production both in automobile and home appliance segment, which are steel intensive and there has been a geometric increase in steel prices in recent months. For instance, in the last three months alone, steel prices have gone up by 12-15%. Given that the composition of steel in an appliance is as high as 30-40%, the impact on the cost is huge.

Central Sales-tax: Reduction in Central Sales-tax from 3 to 2% was expected. This was indicated in the previous budget that progressively CST would be reduced from 4 to 3%, 3 to 2% and so on and so forth. This gives only a marginal benefit on the inter-state raw material procurement considering the fact that most of the suppliers are located in the vicinity of manufacturing location, which does not entail any inter-state movement.

Packaging: There is a drop in excise duty on the packaging front which hardly impacts the price as the packaging cost is less than half percent of the product price.

The above three are the only benefits, which have accrued to the sector. However, there are certain critical areas which held huge benefit to the nation at large, which the government themselves were geared to have been aggressively pursuing with the industry, where relief has not come through. Some of these are:

First, after the launch of energy regime in the country, many appliance majors took up voluntary initiatives to invest in design, technology and processes to make appliances energy efficient. The industry has not passed on these costs to the consumers expecting that these initiatives would be rewarded a favourable taxation by the government. Had this happened, it would have been a win-win situation for all – consumers are incentivised with the price of the goods, manufacturers are encouraged to invest and the government gets a breather on the pressing power situation.

Second, as the rural market penetration of appliances in the country is a pitiable 4% compared to that of the urban sector, which is 4 times as much, it would have been a big booster had a favourable excise duty been levied for products which go to the segment - like less than 180L capacity single door refrigerators, semi-auto washing machines, etc. In countries such as China, such subsidies are offered to propel growth of the low end segment. Perhaps, a similar move here would have helped.

Third, credit penetration in the rural market is very low and it would have helped if NABARD had come out with a suitable consumer financing scheme for this segment.