Budget 2023: Retail sector to benefit from push towards local manufacturing

From rejig in custom duties on various commodities to focus on emerging AI technology, FM’s focus has been on making India a manufacturing hub.

By  Saumya TewariFeb 1, 2023 7:41 PM
Budget 2023: Retail sector to benefit from push towards local manufacturing
Custom duty exemptions will also be provided for the manufacturing of lithium-ion batteries for another year. This will help drive the broadening of the local component ecosystem and increase domestic value-addition. (Representative Image: Jason Leung via Unsplash)

Continuing the focus on the ‘Make in India’ initiative, Finance Minister Nirmala Sitharaman, in the Union Budget 2023-24, made a slew of announcements that could benefit the retail sector. Sitharaman announced a rejig in custom duties on various commodities and products.

The FM has announced a reduction in the basic customs duty rate, other than for textile & agriculture, from 21 percent to 13 percent. This is aimed at making the country a manufacturing hub and an investment destination.

“As a result, there will be minor changes in the basic custom duties, cesses and surcharges on some items, including toys, bicycles, and automobiles,” Sitharaman said.

In a bid to boost the demand and penetration of smartphones, the FM announced relief in customs duty on import of certain parts and inputs of smartphones such as camera lens. Custom duty exemptions will also be provided for the manufacturing of lithium-ion batteries for another year. This will help drive the broadening of the local component ecosystem and increase domestic value-addition.

Focus on local manufacturing

Experts believe that this move is targeted at making India a manufacturing hub and reduce dependency on imports of various electronic parts. But this may not necessarily translate into significant reduction in retail prices of smartphones.

Tarun Pathak, Research Director, Counterpoint Research, highlighted that the customs duty cuts will help localise manufacturing, but whether it will bring down the cost for consumers will depend on the original equipment manufacturers (OEMs).

“It is to be noted that the government has reduced the duty on camera lens, which is a part of the overall camera module. The lens, where the duty has been cut, accounts for only 1-1.5 percent of the overall manufacturing cost. However, this move will make smartphone manufacturing further localised in India. I must highlight that only 33 percent of the wearables (smartwatches) category are being locally assembled. So, there is still a lot of room for more to be done,” he explained.

Meanwhile, in the consumer durables category, the FM announced the reduction of basic customs duty on open cells of TV panels to 2.5 percent. However, industry executives believe that this move is also aimed at promoting local manufacturing. It will have an implication on retail prices only in the long term.

“There are not many players making open cells of TV panels in the country. It could benefit customers only in the long run once manufacturing starts here,” said an industry executive on condition of anonymity.

AI to create cross-industry opportunities

The retail industry seems excited about the government’s focus on emerging technologies, such as artificial intelligence (AI). The FM has announced that India will set up three centres of excellence (COE) for AI at top educational institutions to develop cutting-edge AI solutions in the country.

Satish NS, President, Haier India, told Moneycontrol that with the advent of AI in the consumer appliances and electronics segment, it has opened a wide array of possibilities, given the massive size of the electronics market.

Biswapriya Bhattacharjee, Director – B2B Technology, Insights Division, Kantar, noted that the setting up of ‘Make AI in India’, along with 100 labs for 5G services, will open up significant opportunities for the digital devices space. “Productisation of these solutions will also open up global opportunities for monetisation of solutions that are created in India,” he added.

Amongst other announcements, the FM said that to rectify the inversion of duty structure and encourage the manufacture of electric kitchen chimneys, the import duty is being raised from 7.5 percent to 15 percent, while that on the chimneys' heat coil is being reduced from 20 percent to 15 percent. FM Sitharaman also announced increase in taxes on cigarettes by 16 percent making them costlier for consumers. Diamond, gold and silver utensils got costlier.

Ankur Bisen, Senior Partner & Head - Retail, Consumer Products and Food, Technopak Advisors, thinks that these announcements need to be looked at from a wider lens as they are not necessarily being made to bring down the retail cost of products.

“These announcements are aimed at creating incentives for manufacturing to move into India. The manufactured cost depends on multiple market-related factors, which eventually decide the retail prices. Also, it depends on the consumer brand, whether the saving will be included in its profit or passed on to consumers as better price,” he noted.

Union Budget 2023 also rejigged personal income tax by increasing the rebate limit. Experts say this will mean more money in the hands of the people. However, the tax exemptions are a positive development for the lower end of consumption, as the lower and middle class will have more disposable income. This will benefit companies that operate in the value segment across categories, such as fashion & lifestyle, food and technology.

First Published on Feb 1, 2023 6:11 PM

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