TV prices won’t fall anytime soon despite tax cut on open sale parts

Presenting the Union Budget on Wednesday, Finance Minister Nirmala Sitharaman reduced customs duty on parts for production of open cells to 2.5% “to promote value addition in the manufacture of televisions”. Consumers, industry executives and analysts are of the opinion that brands will be able to take advantage of the revised duties on Open Cell components only after contract manufacturers start local assembly of Open Cell.

‘Open cell’ refers to the multiple layers that sit between the backlight and the outer frame of a television. As of now, there are no large scale open cell manufacturers in India. In June 2019, Holitech Technology opened a component manufacturing plant in Greater Noida, Uttar Pradesh. Holytech is one of the global component suppliers to Chinese electronics maker Xiaomi.

“The open cell duty revision will have an impact of around 0.5-1% on the total Bill of Materials (BoM) cost of TVs. Under India’s Phased Manufacturing Program (PMP), there is a direct benefit in margin since components are sourced locally, which saves duties for us. However, it will be up to the local manufacturers to scale up their local operations as only then the cost efficiencies will come down and the cost benefits can be passed on to the consumers. It is not an overnight process,” said Muralikrishnan B, President, Xiaomi India.

Local contract manufacturers agreed, adding that there would be no immediate change in TV prices.

“At least for the immediate future, TV prices will remain the same. The change in customs duty on open cell components will provide benefits only if manufacturers start assembling open cells in India on a large scale, thereby reducing the cost of the duty. As of now, most open cells will need to be imported as India does not have large-scale local manufacturers, and imports of fully assembled open cells still attract a 5% tax,” said Contract Manufacturer, Videotex Arjun Bajaj, Director, International said.

The government’s decision to impose a 5% import duty on components required to manufacture Open Cell locally, announced in November 2020, has reportedly deterred firms from setting up manufacturing facilities for Open Cell in the country.

Vedanta Group’s proposed display manufacturing plant in India is “the beginning of making open cells in India,” said a senior industry executive at a component manufacturing firm, on the condition of anonymity. He said that Samsung of South Korea had also considered such a plant. , while another industry official said China’s TCL was also in talks to open such a facility in India. The first executive said TCL’s plans could be put on hold.

“There has been resistance to bringing open cell manufacturing to India. This is the same thing that people like Japan faced when they started local manufacturing, because such plants require significant investment, and when you move a plant from one place to another it takes away jobs. also costs. However, such investments happen when companies have their backs against the wall, and the right geopolitical situation is something like that,” the executive said.

According to industry experts, the reduction in open cell component duty when implemented on a large scale for local manufacturing can result in savings of around Rs 100 crore. Price around 800 on a TV 30,000. “Such savings could be significant given the scale of India’s TV industry, which already shipped 14 million units per year as of CY22,” said Tarun Pathak, research director, market researcher, Counterpoint India.

However, several challenges have to be overcome before such local sourcing can be taken up on a large scale. “Local sourcing can increase domestic value addition in the manufacturing pipeline, and this reduction in duty could be the first in a series of steps that will eventually lead to a production-linked incentive (PLI) solution to encourage domestic component manufacturing. can give birth to some form. But, it’s a long process, and before sourcing components, we’ll need to ensure quality checks, certification and standardization across processes, so there’s a lot of back and forth in all this,” Xiaomi’s Muralikrishnan said.

An industry expert, who requested anonymity, said creating a single PLI scheme to incentivize the sector could also be a challenge. “Making LCD modules (which are part of Open Cell) comes under semiconductor fabrication, while optical and polarizing films (also part of Open Cell) come under glass sheet making. Inefficiency is another hurdle, which we are slowly removing.”