Consumer durables are no longer luxury items

After a small setback in 2008, the consumer durables industry posted tremendous growth in 2009, which more than compensated for the fallen year. Now, Indian consumers are eager to replace their existing refrigerators with frost-free models, window air conditioner with split ACs, semi automatic washing machines with fully automatic ones, and colour televisions with premium LCDs and LED TVs, which are boosting sales of players like Samsung, LG, Panasonic, Sony, Videocon and others.

The competition between consumer durable giants is building up as market leader LG, Sony and Samsung ramp up production capabilities and investments for India. The market share of MNCs in the domestic consumer durables sector is 65% as they primarily target the lucrative middle class segment.

On the other hand, Indian firms such as Videocon and Onida are aggressively competing with MNCs on the basis of their local market knowledge and wider distribution network.
LG will be investing Rs 600 crore in marketing and new product development to ramp up sales and maintain its market leadership position. It is targeting 35% growth in its Indian operations in 2010, focusing on products such as ACs and TVs. The company has a 29% share in the AC market and expects to end the year with a 32% share.

With the increase in income levels, easy availability of finance, increase in consumer awareness, and introduction of new models, the demand for consumer durables has increased significantly. Products like washing machines, air conditioners, microwave ovens, color televisions (CTVs) are no longer considered luxury items.

The government’s liberal fiscal policy has also encouraged the consumer electronic industry to expand production with the help of localisation. The reduction in import duty few years back has benefited these companies as they import their premium end products from manufacturing facilities outside India.

The government last year had reduced import duty on LCD television panels from 10% to 5%. This has helped LCD manufacturers to import panels and assemble complete units here. The LCD television category’s demand is thus being met locally by all players.

Suresh Khanna, former secretary general, Consumer Electronics and Appliances Manufacturers Association (Ceama) said the fraternity is expecting to manufacture 300 million television sets this year.

According to industry sources, in 2010, air-conditioners are expected to grow 25%, split air-conditioners 60%, frost-free refrigerators 54%, washing machines 20%, fully automatic washing machines 35%, microwave ovens 35%, high-end flat panel TV 100%, LCD TVs 110% and the plasma TV are likely to register a 100% growth.

But the penetration level of all consumer electronics and durables categories is still very low as government spending on infrastructure has not kept up the pace with the demand. Players believe pricing will play an important role in increasing the penetration level. And, pricing is dependent on raw material costs and excise duties.

Companies are demanding quick implementation of GST (goods and service tax), which can bring about a considerable reduction in the prices of products.

“While we expect this Budget to address macro issues which would impact demand generation, industry also needs administrative and tax reforms in various areas like for movement of goods and double taxation. Hope that in 2010 the government keeps intact sops announced last year to cushion the impact of the global economic downturn,” said, Eric Braganza, president, Haier Appliances India.

The industry expects the government to deepen its focus on the rural economy with greater fiscal incentives and
rural employment, as the rural demand will get a boost.

Manufacturers are hoping for policies that result in higher disposable incomes in the hands of customers so that they loosen up their purse strings and it results in higher sales for them.