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% 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% 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% 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 neighbourhood 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.
Read More at: https://www.moneycontrol.com/news/business/economy/luxury-or-necessity-does-the-air-conditioner-warrant-28-gst-2997951.html