India’s Plan To Curb Chinese Imports May Hurt Air-Conditioner Makers
Indian makers of air-conditioners will be among the consumer durable companies that will see costs rises as the nation plans to increase duties on imports of components from China amid a border standoff.
The Bureau of Indian Standards is considering tougher import norms for at least 370 items that can be locally produced, Bloomberg reported citing unnamed officials. Discussions are also on to raise import duty on furniture, compressors for air-conditioners and auto components. That comes when India is embroiled in a border standoff that killed 20 Indian and an unknown number of Chinese soldiers earlier this month.
Level of localisation is 50% for air-conditioners, and 15% or less for items like LED televisions, smartphones and laptops. Electrical machinery and telecom equipment has the highest share in imports from China at 29.3%, according to CEIC. India’s overall trade dependence on China, according to the Ministry of Commerce, has doubled in the last decade to $48.6 billion.
Higher duties will be a negative for air-conditioner manufacturers as compressors form 25-30% of the costs and are largely imported from China, Kamal Nandi, business head and executive vice president at Godrej Appliances Ltd., told BloombergQuint.
The makers of cooling appliances have already lost out on summer sales this year due to the coronavirus lockdown and rupee depreciation, he said. An increase in compressor prices will only add to cost pressures.
Under the existing WTO guidelines, duty on compressors and components could rise to 35–40% from the current 20%, Manish Desai, chief financial officer (products) at Voltas Ltd., said in a conference all. The industry, he said, has appealed to government to increase duties on finished goods rather than components as Indian manufacturing is yet to scale up.
Indian white goods makers are heavily dependent on China, as far as the supply chain is concerned. It would be difficult to replace Chinese suppliers in critical components like compressors, LED chips, motors and mobile phone displays, Gautam Duggad, research analyst at Motilal Oswal, said in a report.
Among companies, Duggad said Voltas will be the most impacted as it has the highest dependence on compressors from China. Havells India Ltd. and Crompton Greaves Consumer Electricals Ltd., he said, would be the least impacted due to low exposure to China.
While Havells is dependent on China for some intermediary components, he said, the overall proportion is quite low compared to peers.
Voltas relies on China for inner door units but dependence on imports has come down from 93–94% three to four years ago to 70%, Desai said in a conference call. With the company actively investing in its own inner-door moulds every year, this would further reduce to 50% over the next three to four years, he said.