The custom duty hike is only on components, and impact just three percent of the industry
Finance Minister Nirmala Sitharaman, in the Union Budget 2019, doubled the customs duty on imports of indoor and outdoor units of split air-conditioners (AC) to 20 percent.
This led to widespread apprehensions that the move would lead to increase in prices of split ACs.
And this is why it is so.
There are two major models of AC manufacturing in India. One is where the whole product is imported from abroad, and then sold here. These are mostly manufactured in China or Vietnam, before being brought to the Indian market.
In the second model, the product is manufactured in India.
Now in the third model, the main components of the AC - indoor and outdoor units - are imported, and then assembled in India, before being sold.
Last year in September, the government had doubled the custom duty on the finished product (model 1 above). After this, consumer durables' firms had to marginally raise prices of ACs.
The current announcement is about the third model, which is the least common of the three. In fact, it constitutes just three percent of the industry.
Vijay Mansukani, Managing Director, Mirc Electronics (Onida), said the customs duty of 20 percent on imported air conditioners had been implemented last year and hence the new announcement will not have much impact on the sector.
Kamal Nandi, Business Head and Executive Vice-President, Godrej Appliances, added that there will not be an impact on split AC prices since most players manufacture domestically.
He added that this move has been made to regulate tax evasion and only a handful of traders who buy components from abroad and assemble them in India, will be impacted.For customers, this will mean that there will not be any price increase while purchasing split ACs.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .