Union Budget 2022-23: The dip in consumer demand and container shortages further impact operating costs
The economic impact of the COVID-19 pandemic in India has been largely disruptive. The second wave of the outbreak created major economic setbacks and impacted the overall growth trajectory. Over the last year, the economy has witnessed high levels of inflation across industries, influenced by rising input costs and disruptions in the supply chain.
Several restrictions in the past two years have caused global supply chains to completely break down. Container freight rates are hovering near an all-time high, ports have been blocked up with ships waiting to load and unload, and freight containers are stuck causing shortages, among other issues. However, with the rapidly increasing vaccination drives and with a better experience of pandemic management, the economy is showing signs of revival.
The consumer durable industry has been at a unique conundrum where the inflation, sourcing costs on imported materials like electronic chips and metal, and logistics are all at an all-time high. The dip in consumer demand and container shortages are further impacting our operating costs, ultimately leading to a price hike.
However, with consumers getting more tech-savvy in 2021, we have witnessed a growing awareness for Artificial Intelligence (AI) and Internet of Things (IoT)-enabled products. This has also led to strong demand for premium segment products like high-capacity refrigerators and washing machines as well as niche products like dishwashers and dryers. But high inflations with the resurgence of COVID-19 have led to households postponing their purchase of consumer durables.
Recognising these pressures, we are hopeful that the government will reconsider tax slabs for certain categories to help us address price hike issues.
Currently, dishwashers fall under a 28 percent GST slab since they are categorized as in the luxury product segment as against an essential. We urge the government to relook at these new-age, essential-to-productivity products like dishwashers which are a sustainable option as they not only offer better levels of hygiene and enhance work-from-home lives of consumers but also helps save water in a high order of magnitude (approximately 100-120 liters per day per household). Any relief in tax slabs will boost the category and its impending innovations.
In terms of ‘Make in India’, we are glad that the government is making efforts towards making India a manufacturing hub with initiatives like the PLI scheme which would give impetus to local manufacturing. Historically, the industry has benefited from incentive-linked schemes. We hope to see an increase in the ambit of PLI schemes dedicated to the refrigerator and washing machine manufacturers, also. The same goes for sustainability as well.
As an organisation, we are actively working on initiatives that contribute to India’s ambitious 2030 carbon emission target. We hope that the government identifies private organizations that are doing their bit to reduce India’s carbon footprint and incentivise them further.
In the last one year, we expanded our production capacity to strengthen our ability to manufacture cutting-edge products locally but we are confident that schemes and subsidies will only help us grow further in this direction.
An important area to focus on in terms of local manufacturing would be incentives linked to the production of chips and other critical components for consumer electronics. Last year, our industry witnessed rough tides due to shortages in chips as we were heavily dependent on external markets for the same. If we are able to produce chips and other components locally, we not only fasten our output timelines but also avoid price hike issues linked to imports and delays of these elements.
Overall, in terms of administration, we hope to see a couple of changes that will further ensure ease of business:
1) Reduction in the number of returns and smooth and speedy disposal of litigation,
2) Availment of GST credit which has the potential to be simplified further.
In 2022, BSH will continue to expand local manufacturing as well as R&D with the help of such pro-growth schemes and measures by the government that motivate companies such as ours. We continue to remain optimistic on the recovery and growth potential of the consumer durables industry with premiumisation driving the category ahead.
The writer is MD & CEO, BSH Home Appliances. Views are personal
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