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CTV price hike in offing on higher duties in budget - Views on News from Equitymaster
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  • Mar 7, 2000

    CTV price hike in offing on higher duties in budget

    Multinational companies (MNC) manufacturers of colour television (CTV) are concerned about the higher duties proposed in the latest budget. The only option staring them in the face is a price hike.

    Consumer electronics sales have declined in the current year, after posting double-digit growth last year. The scenario can only worsen now with the proposed hike in custom duties. Peak rate of duties on CBUs (completely built units) has increased from the existing 40.0% to 42.5%. The situation has been compounded further by the fuel hike and a 4-5% jump in special import licence premium.

    With the additional burden of import duties, MNCs like LG, Philips and Samsung (with a higher import content) will be affected more than local manufacturers like Mirc Electronics (Onida), BPL and Videocon. The only option for the MNCs, although an undesirable one, is to hike prices and pass on the burden to the consumer. However, given the slow growth of consumer electronics during the year, this will lead to even more depressed sales.

    The MNCs are contemplating a price hike only in the premium-end of the market, which is not price sensitive. They have decided to leave the mid-segment as it is, as a price hike will drive away consumers (mostly middle class). Moreover, as local manufacturers will not be increasing prices, a price hike in the mid-segment by MNCs may trigger a migration towards the domestic manufacturers. This could hold true even if there is a price hike by the MNCs in the premium segment.

    Another reason cited for the decline in consumer electronic purchases is the booming stock market. Retail investors are channelising excess funds in stocks, and this has led to lower sales in consumer electronics. If this is true, then as markets continue to reign supreme, consumer electronic purchases will take a backseat.



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