Explained: Why the Union Budget's hike in customs duty in LED components may end up helping Chinese imports

Light_bulb

Finance Minister Nirmala Sitharaman announced in Budget 2021 that there will be a rise in customs duty for importing LED light components like LED driver or MCPCB (metal core printed circuit board)  from 5 percent to 10 percent. This announcement was to encourage domestic manufacturing for lighting solutions.

However, LED makers are upset with this move since this duty hike would automatically lead to a rise in prices of bulbs by 5-7 percent.

Following this, the Electric Lamp and Component Manufacturers' Association (ELCOMA) is planning to approach the government to seek a solution to this issue. ELCOMA wants duties to also be imposed on completely imported LED lights.

The Indian LED lighting market is estimated to be Rs 10,500 crore, growing at 10-12 percent every year. Large players in the LED lighting market are Havells, Bajaj Electricals, Crompton Greaves Consumer, Wipro Lighting and Philips.

What did the government say?

Sitharaman said during the Budget 2021 speech that customs duty is being hiked across products categories like compressors (used in the manufacturing of air conditioners and refrigerators), mobile phone parts and LED lamps/fixtures components.

The idea is that this duty hike would nudge the lighting market players in India to shift to procuring products/components locally and boost ‘Make in India’.

However, the reality is that close to 40 percent of LED light components are imported into India China, South Korea and Vietnam. This is because there is no domestic manufacturing capacity for these products.

For finished products, about 20-30 percent is imported from markets like China. Unorganised market data for products imported from China is not available.

How will this impact customers?

A rise in customs duty by 5 percent means importing all these products would automatically become expensive. When it comes to LED lighting, since components used in manufacturing of these lighting solutions will be subject to customs duty, all products will see a price rise.

Local producers are concerned that while complete lights imported from markers like China will not see any price hike. This is because the duty hike is only on raw materials used for manufacturing LED bulbs and fixtures.

The circuit boards and drivers that are key components in LED lights are imported from abroad. This is true for LED bulbs that are manufactured in India.

“Bulbs that are made in China and sold in large electronic markets across the country will see no price impact. But Indian players like us will have to increase prices. Where is the level playing field?” said the head of lighting business at an electrical goods firm.

In India, about 55-60 percent of the market is consumer lighting for retail customer while the rest is commercial lighting.

Why are companies worried?

Lighting sector players are concerned that the move to impose higher duties on LED components and not on completely built products will be discriminatory.

There is a fear that Chinese bulbs and lighting fixtures will dominate the market and attract more customers, since they would be priced lower.

“How will domestic manufacturing capacities be encouraged if you are not imposing higher customs duties on imported LED lights from China? Customers will automatically choose products that are cheaper,” said the senior vice president at a consumer durables firm.

Moneycontrol had reported earlier that Chinese lights were present in full force in Indian markets even during the 2020 festive season due to their lower prices.