Prices of refrigerator and AC likely to go up due to customs duty increase on compressor

KOLKATA: Prices of refrigerator and air-conditioner are likely to go up marginally by around 1% due to a small increase in basic customs duty on their key component – compressor – by 2.5%.

At present, the domestic production capacity of these components is only 40% of the total requirements for refrigerators and 20% for air-conditioners. Manufacturers of AC and refrigerators said prices would go up by Rs 100 to Rs 500 at most.

“The industry had in fact batted for a duty hike on the compressor as per phased manufacturing programme in order to build a component eco-system,” said industry body Consumer Electronics and Appliances Manufacturers Association (CEAMA) president Kamal Nandi.

Nandi, who is also the business head at Godrej Appliances, said this duty hike and production linked incentive (PLI) scheme for AC will encourage investments into the sector.

The budget increased duty on compressors for these two products from 12.5 to 15%. The cost of the compressor is around 25-30% of the final product price.

Panasonic India CEO Manish Sharma said the weighted impact of the duty hike will be around 0.6%. “Already two large companies have been setting up compressor plants which got disrupted due to Covid. These projects would now get a fillip,” he said.

Finance minister Nirmala Sitharaman in her budget speech said domestic electronic manufacturing has grown rapidly and for greater domestic value addition the government will review the custom duty.

“Our custom duty policy should have the twin objective of promoting domestic manufacturing and helping India get onto the global value chain and export better. The thrust now has to be on easy access to raw materials and exports of value-added products,” she said.

Blue Star’s managing director B Thiagarajan said the marginal hike in duties on the compressor is a welcome relief coming after the 16-17% increase in commodity prices which necessitated a price hike.

“The scope to absorb the duty hike is extremely low and we will pass it. What may happen is that consumers may opt for low priced products due to the price hikes which have happened recently,” he said.

Prices of AC and refrigerator have been hiked by 7-15% since December due to the increase in commodity prices like steel, copper and aluminium and freight.

Nandi said the drop in duties for steel will not help since the white goods industry largely imports speciality grade steel from South Korea where there is already a free trade agreement and hence no duties are levied.

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