Financial Daily from THE HINDU group of publications
Saturday, Jan 10, 2004
Industry & Economy
Excise and Customs
Duty cuts to marginally benefit consumers of high-end products
New Delhi , Jan. 9
THE reduction in peak customs duty and the abolishment of the special additional duty by the Government may not result in a drastic reduction in the end-price for the consumer of high-end items.
Companies importing high-end products, such as automobiles, luxury watches and wines point out that the steps taken yesterday would result in only a marginal, if any, impact on end-prices principally due to the appreciation of currencies such as the euro and yen in recent months.
Points out an official from an auto company, "The duty reduction would help companies importing cars in CKD and SKD format. Basically, the higher the import content in the automobile, the higher would be the benefit. However, with automakers under pressure due to rising input costs and appreciation of key currencies, the companies may not be able to pass on the actual benefit to the consumer."
In fact, as an official from a car manufacturer puts it, even if one were not to take into account the external pressures, for every 10 per cent import content which a car has, the impact for the end retail price would only be about 0.5 per cent.
"Nevertheless, there may be an indirect impact as suppliers to the auto companies will benefit due to the decrease in duty on imported raw materials," Mr Vinay Piparsania, Vice-President - External Affairs, Ford India, said.
Ford though not decreasing the price of its sports utility vehicle (SUV), Endeavour, plans to keep its introductory pricing for a longer period of time following the duty reductions.
Maruti too has announced that its intended increase in prices for its cars has been lessened due to the reduction in customs duty.
There is likely to be little impact on other categories as well.
"The Swiss franc has appreciated steadily. The amount we have taken for our price is far less than the current exchange rate. The Swiss franc is slated to rise further. In this respect, the current reduction in excise duty will not significantly affect the pricing structure. However, the Indian Government has taken a very positive step, and the current reduction is more than the previous year's annual reduction. This is a positive sign," Mr G. Kannan, Country Manager, Swatch Group India, said.
According to Mr Ashwin Deo, Managing Director, Moet-Hennessy India, the recent steps have resulted in the duty on top-end imported spirits to come down from 249 per cent to 203 per cent. "However, with the euro appreciating by about 14 per cent in recent months, there is little scope for price reductions," he said.
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