NEW DELHI: Experts may say it's a budget aimed at the upcoming elections, but upwardly mobile urban consumers will have to pay more for almost everything they covet— from cranberry juice and iPhones to sunglasses and lipsticks —due to higher customs duty.
Not just the long list of items on which finance minister Arun Jaitley has proposed an increase in customs duty, but all imports will be impacted as he has also proposed a social welfare surcharge of 10% on basic customs duty.
Import duty on a host of beauty and cosmetic products, including make-up preparations, sunscreens, perfumes, hair colours, and manicure and pedicure products, is being doubled to 20%. The move will impact global players such as Sephora, South Koreabased Innisfree, Bobbi Brown, Estee Lauder, and Italy's Kiko Milano which import majority of their products.
Department store chain Shoppers Stop, which sells global labels including Bobbi Brown, Mac and Estee Lauder, is expected to increase prices of perfumes, eyewear and cosmetics, "especially premium ones", by 10-15%, its managing director Govind Shrikhande said. "A bulk of the sales in products such as high-end perfumes, eyewear and cosmetics are in premium segment which are all imported," he said.
He said the customs duty hike, coupled with the introduction of 10% long-term capital gains tax (exceeding Rs 1 lakh) in the equities market, "may dampen consumer sentiment".
Shriti Malhotra, chief operating officer at UK-based Body Shop India, which imports all its products, said: "Hike in customs duty will definitely impact the sector negatively, however the exact implications will have to be understood, once the policy details are known." Homegrown company Modicare, which owns cosmetics brand Colorbar and imports majority of the products from Italy and Germany, said the hike in customs duty would have a direct impact on prices. "The increase in customs duty would have a direct impact on prices. "The increase in customs duty will hurt us. We can't absorb the cost entirely and it will have to be passed on to consumers," said Samir Modi, founder of Modicare.
Prices of iPhones and Google's Pixel smartphones are set to go up by 3-4% due to increase in custom duty to 20% from 15%, though iPhone SE, which is locally manufactured, will escape the price hike.
A senior industry executive, however, said smartphone makers may decide to absorb a part of the duty increase because Apple had increased iPhone prices by an average 3.5% in December after the government had raised import duties by 5%. Apple declined to comment.
Experts said the import duty increase would make it a double whammy for consumer products companies that are already reeling under poor sales due to low consumer sentiment.
For example, television sales declined by 8%, while sales of refrigerators grew by about 2% and washing machines by around 3% in the October-December quarter, according to white goods industry sales tracker GfK. Similarly, fashion and lifestyle retailers reported 10-12% drop in sales in the same period despite luring consumers with heavy discounting.
Yogesh Bellani, chief executive of FieldFresh Foods that imports olive oil and juices under the Del Monte brand, called it a 'triple whammy'. He said, "Crops haven't been good because of climatic conditions, the euro has had an inflationary impact so prices have moved up, and now the hike in customs duty." He said olive oil prices could move up 7-10%.
Flat panel television prices are expected to go up by 1.5-2%, escaping any major price increase despite the government doubling duty on LED panels to 15%, since most of the companies have started local assembly of panels by placing the glass top on the panel. The price hike for televisions will be due to increase in duty on parts like the TV cabinet and printed circuit board where it has gone up to 15% from 10%.
Source: economictimes.indiatimes.com