Production growth dips for durables

HIGH interest rates coupled with the Free Trade Agreement (FTA) with Thailand have claimed the first casualty. In the first signs of a slowdown, manufacturing growth in the Rs 25,000-crore consumer durables industry dropped radically to 1.6% in February in contrast to over 20% growth last February. Imports of colour television, an important segment of the white goods industry, have gone up from $0.06 million in 2004-05 to $83 million in 2005-06. It is projected to hit $150 million in 2007-08. The Index of Industrial Production with base 1993-94 for the month of February 2007, released by the Central Statistical Organisation of the Ministry of Statistics and Programme Implementation, points to continued loss of growth momentum in consumer durable production. January last, the growth rate was only 6.8% over 15.9% in the year-ago period. December 2006, too, showed a similar slowdown, 3.3% over 12% for December 2005. “The compression of demand could be responsible for the low IIP in the latter months of the fiscal. And this comes from the tight monetary policies of the RBI, which resulted in hikes in interest rates,” says Prime Minister’s Economic Advisory Council member Saumitra Chaudhuri. Among consumer durables, apart from the 0% duty under the FTA with Thailand, a hardening of interest rates, high levies and the rapid march of CPI over the last few months seem to have contributed significantly to the slowdown. “On an average, duties in the durables sector sit at 30%, whereas computers and mobile phones have been given preferential treatment. Moreover, we don’t have any incentive to manufacture in India as the FTA with Thailand allows many durable products, including TVs, at 0% basic custom duty since Sept 2006,” complains CEAMA president Anoop Kumar. Under FTA with Thailand, the basic custom duty on consumer durables stood at 12.5% in September 2004, and came down to 6.25% in September 2005, which was further lowered to 0% in September 2006. That explains why Sony is importing its TVs from Thailand. The cost of capital has not worked for manufacturers who’ve had to stock inventories. “The offtake has slowed down since the CPI has increased over the last few months making durables out of reach of the middle class consumers. Besides, in January and February sales of durables in general take a dip,” says Godrej & Boyce VP, retailing Shyam Motwani. Says Whirlpool of India VPmarketing Shantanu Das Gupta: “We have not yet seen a slowdown (in demand). What is growing on consumer durables market are imports from China,” he points out.

Courtesy: EconomicTimes