Luxury Or Necessity: Does The Air Conditioner Warrant 28 Percent GST?

In the mid-1950s, India got its first air-conditioner — an awe-inspiring machine then. A product which only a few could afford soon became a status symbol for many. Cut to 2018, air conditioners have become a commonplace at Indian homes considering the tropical weather.

The government, however, has a different take. Air conditioners are considered luxury products and taxed at 28 percent under the GST regime. Since a lot of parts for air-conditioners are imported from abroad, they are required to pay customs duty. Add 28 percent GST and the cost of manufacturing goes up significantly.

About 5 million air conditioners are sold every year in India and it is estimated that this will rise to 7.5 million by FY20.

The fear of a sales hit has kept white goods makers from passing on the costs to the customers.  On one hand, while prices have not seen a downward revision, customers are still queuing up to buy air-conditioners even though prices are moderate to high.

A Motilal Oswal report says that Tier 2-4 towns now contribute 50-55 percent to overall air-conditioner sales, double of what it was about five years ago. Another report by US Energy Information Administration had said that air-conditioners are the most prevalent purchase by India’s middle class.

The price of an air-conditioner ranges between Rs 19,000 and Rs 25,000 on an average. It is a big investment, though an essential in dry and humid weather conditions.

In the hope of a reduced price, customers have been postponing their buying decisions. In 2018, unseasonal rains and high GST led have made customers continue their wait-and-watch strategy.

Meanwhile, the government also has a proposal to make 24 degrees as the default setting in air-conditioners. Companies have opposed this move saying in several regions of India, 24 degrees will be too warm.

India is getting warmer due to the impact of the climate change. Average temperatures are said to have risen by almost 0.4-0.5 degrees Celsius in the last 40-50 years. With summer temperatures rising to 40 degrees in several parts of North and West India, having an air-conditioner has become more of a necessity than a luxury.

All of us remember the old days when we would throng to the neighborhood internet café that had an air-conditioner. Banks also started setting up ATMs where you would regularly find a few men and women entering in groups to get momentary relief from the scorching heat.

An air-cooler, a distant cousin of air-conditioner but a staple in most homes, has an 18 percent GST applicable. Air-coolers too have been battling the high manufacturing costs too.

Unlike the earlier era where cooling products were appliances only seen in the homes of the affluent, it has become a basic item in most metros and several smaller towns as well. While Make in India is a laudable move, it is a reality that India is an importer of several essential components of air-conditioners.

The aam aadmi has been battling inflation of prices across goods and services. A partial cut in duties and the rate of GST could offer the much-needed cooling effect for the consumers.— Money Control

Discounts Boost Sales During Shradh

Notwithstanding inauspicious shradh period, sales of consumer durables such as refrigerators, washing machines and air conditioners have increased as consumers are rushing to buy old stock at a discount after the government raised customs duty on these products.

Punjab-based retailers say normally sales are almost nil during this period (September 24 to October 8) and they resort to various offers to attract customers. This year, things are different because people fear a spike in rates of white goods and consumer durables after the government raised import duty on 19 items from September 27.

“We are selling items lying with us in inventory at old rates and this is a temptation for customers as they know that prices will be revised soon due to imposition of higher customs duty. Otherwise during shradhs footfall remains low,” says Ashok Kumar from Ludhiana-based Dee Kay Electronics. Shradh is a period generally considered inauspicious for starting something new or buying valuables.

Although buyers of cars still have reservations, says dealers. During the shradh period people do not take deliveries of vehicles. Some of them even do not book new vehicles in these 15-20 days, says Goyal Hyundai (Ludhiana) general manager Premjit Singh. “To promote sales, we offer discounts and gift vouchers,” he adds.

Singh says there are exceptions. Recently, a customer insisted on purchasing a car during shradh. His reason was unique. He said this was the right occasion for him to buy a new vehicle to show his ancestors that he was doing well with their blessings. “I have purchased the vehicle to thank them,” the customer told Singh.

Anuj Bansal, owner of Ambala-based Eakansh Wheels, the authorized dealer of Maruti Suzuki, says companies are coping up with the plunging sales by offering free accessories and sometimes even gold coins. “We get the bookings but the physical deliveries of the cars go down by 70-75 percent during this period,” he said.

Instead of actual deal, the real estate market is abuzz with sales enquiry during the shradh period. Mohali-based Paradise Builders says queries have increased but people are holding decision till navratras.

In Ambala, people find this an opportunity to buy washing machines, refrigerators and ACs due to special offers. Rajesh Batra, owner of Alankar Electronics says, “Special offers include buy-one-get-one scheme in LED TV segment, and exchange benefits up to Rs 25,000 in all electronics goods segments have attracted customers.”

“Earlier, there used to be reluctance, but now the time is changing and the offers are also supporting the business. No significant dip in sales is being observed,” he said.— Tribune India

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