3cs : Custom Duty, Chinese Import, Cronavirus - FDT

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Indian Furniture Market is anticipated to reach USD 32.61 Billion by 2018 by registering a CAGR of 13.38%during the forecast period i.e. 2018-2023.

As per the latest reports available, the Indian furniture industry is mainly divided into household furniture (65%), Office furniture(15%), Hotel furniture (15%) and furniture parts (5%). According to a report on Indian Furniture Market 2019, the market is expected to expand at a CAGR of 12.91% during the forecast period of 2016-2023. A large part of the industry (almost 85%) consists of the unorganized sector courtesy to the fact that we Indians still believe in the durability of the customized furniture designed by the hands of traditional carpenters. The handcrafted wooden furniture rules the market and has its share in both, luxury as well as economy furniture segment.

In the recent years, there has been a significant increase in furniture import. The boost in online retail can be quoted as one of the prime reasons as the educated and tech-savvy customer loves to shop online and buy international quality of branded furniture. They are not hesitant in spending a fortune over the online commodities, contrary to the popular belief. The technological advancement and development in online shopping has also encouraged the national and international brands like Pepperfry, Urban Ladder and IKEA to set up online platforms in India in order to tap the huge market potential.

The size of the imported segment can be gauged from the fact that furniture and home furnishing items worth more than $1500 million gets shipped into India in every year. The growth trend of imported furniture is continuing.

The market is moving more towards organized segment. Furniture imports have noted an increase of 2.5% during FY 17-18 and have subsequently grown while the domestic industry has expanded and added more muscles. As per a report of Indian Importers Chambers of Commerce and Industry, demand of imported furniture in India is on the rise. India majorly imports from China, Vietnam, Indonesia, Italy and Thailand.

A Sudden Jolt: 25% Customs Duty on Imported Furniture

In the wake of the rising furniture import scenario in India, the announcement of 25% customs duty has caused a tremor though the actual rise is of 5% from previous 20%. Keeping in view the need of the MSME sector, it has been stressed that the labor intensive sectors in MSME are critical for employment generation. Cheap and low quality imports are an impediment to their growth, according to the government.

Keen to gauge the pulse of the industry, the FDT team tried to find out the impact of this hike on the Indian furniture industry through interaction with few industry leaders. The reactions are mixed.

While many are welcoming the move saying that it will provide the much needed boost to the industry, a few like Ms. Naila Khan, Head Corporate Communications, Woodenstreet.com are not much happy about the move. She says, “The hike on customs duty came up as a disappointment. Eventually the discounts offered will be lowered and the payable cost by customers will hike by almost 10%.”

In the words of Mr. Tushar Shah, Director, Maple Furniture, “This is a difficult time for importers, but a good time for the Indian Industry to bounce and take the best advantage of it.”

According to Mr. Mayank Gandhi, Business Partner, Fuzzon Furnishing, “I think this will have huge impact on those business houses which only deal in imported furniture. On the other hand, it will promote ‘Make In India.’ People will switch more to locally produced products. This will further have an impact on the labors. They will have more work, more money in their hand which will further boost our economy because money will flow and circulate in our economy. It will initially have a huge impact on business houses which deal in only imported products but mostly our industry is driven by locally produced products. So the impact on the whole industry will not be much.

But overall there will a price rise of 7-8% as some imported parts are used in local manufacturing as well. For example office furniture and modular kitchen industry will have more impact than sofa, bed, dining table industry.”

The hike will have huge impact on those business houses which only deal in imported furniture. On other hand, it will promote ‘Make In India.

-Mr. Mayank Gandhi

“After the Entry of IKEA in our country, I think the future in furniture industry is very less profitable because the competition will be very high. I have seen their products and range abroad. They make excellent products at very cheap prices. As economy is also down and with IKEA and other players entering the market, it will leave no scope of survival in the industry.”

As per Cdr (Dr.) Anil Rana, Professor and Principal Dean Faculty of Manufacturing Skills BSDU, Jaipur, “Customs duty hike on imported furniture and parts is a protectionist step of the government. It will certainly help the local industry to sell more in the short term, but in the long term it will hinder growth in quality and efficiency.

There are many brands that are coming in India. These will become expensive and as a result will find too hard to compete with local and cheaper products available in the market. The furniture industry in India is growing. The growth is likely to continue, more or less at the same rate. Meanwhile, the organized industry market is likely to improve efficiency and productivity, thereby giving a stiff fight to the small scale disorganized segment of the industry.”

Mr. Munish Bohra, Renaissance, Mumbai gives his opinion on the hike by saying, ”Being a domestic player and manufacturer, there will be no impact on us of the customs duty hike. We appreciate this move of the government to hike import duty on furniture because it will give some direct or indirect benefits to local furniture makers.

Although, there will be no big advantage of the same but it will help us in another way. This will also give new boost to local manufacturers and traders to sell their furniture at cheap prices as compared to imported furniture items across India. There can be multiple objectives behind this move and one of the major of them can be supporting domestic industry and MSME by the government. The growth prospect of the Indian Furniture Industry is very bright.”

When asked about the impact of the customs duty hike on the furniture industry, Mr. Nikunj Shah, Partner, Sources Unlimited, Delhi-Mumbai, said, “There is a marginal increase of 5 percent in customs duty on import of furniture. Definitely, imported furniture prices are going to increase and it will be more expensive for end users and customers. But, as previous trends have shown, like in case of GST implementation and demonetization, businessmen and customers, after some time overcome the hurdles and business again becomes regular. After customs duty hike, net effect would be around 6 to 7 percent increase in price for the end customers. Still it’s not really indigestible, it’s manageable.

The Indian furniture industry is growing rapidly. More and more international brands are going to come in India. Now, people are able to understand quality and value of brands. The industry is going to grow and have lot of opportunities.”

There is a marginal increase of 5 percent in customs duty. India’s resilientbusinessmen will eventually adjust to it and overcome this change.

CRISIS DUE TO CORONAVIRUS OUTBREAK

IMPACT ON DOMESTIC BUSINESSES DEPENDENT ON CHINESE IMPORT


Another deterrent in the growth of the imported furniture industry is the recent outbreak of Coronavirus (named COVID-19 by WHO) which has led many global firms to limit their business activity with China indefinitely. For instance, IKEA has already closed 30 of its stores in mainland China.

Businesses are on alert, major events are getting postponed and the global players are learning not to keep all the eggs in one basket. Some companies have been solely dependent on China for a lot of procurement and supply. The sudden crisis created by the Coronavirus is a lesson for such companies to look for new tie-ups with other countries as well.

China is struggling to contain the epidemic, which has killed more than 2000 people so far, the vast majority on the mainland, and infected close to 80,000 people. Authorities have cordoned off cities, suspended transport links and shuttered facilities. The outbreak has the potential to derail bilateral trade worth billions-China exported 356.77 INR Billion worth of goods to India as per December 2019 data. China is India’s second-largest trading partner. The country accounted for 13.7% of India’s total imports in 2018-19.

The Coronavirus outbreak is affecting the economy of the world largely. India is on alert after three students who returned from Wuhan to Kerala tested positive.

Kerala government had declared ‘state calamity’ warning. The Ministry of Health and Family Welfare has released the guidelines for clinical management of such an infectious disease and the travel advisory for travelers visiting China. The world is under the grip of coronavirus scare as the number of deaths saw a sharp rise recently. The World Health Organization has called COVID-19 the ‘Public enemy number one’.

Good news about India is that there had been no reports of further positive cases. The evacuees from Wuhan after a period of quarantine have tested negative. A fresh travel advisory has been issued urging everyone to refrain from travelling to China. Intended visitors from China might apply for fresh Indian visa. Also, people with history of travel to China since January 15, 2020, could be quarantined. Government of Kerala has withdrawn the state calamity declaration after the condition of three positive cases improved and no new cases emerged.

However, since the nature and cure for COVID-19 is not known, the world is vigilant and getting prepared for any further rise of the outbreak.

With hundreds of companies, including big names like Meituan Dianping, China’s largest food delivery company, and smartphone maker Xiaomi Corp seeking bank loans is a sign of trouble. Extended factory closures will slow manufacturing and weigh on global supply chains.

The supply disruption from China if continued will see adverse effect on Indian businesses dependent on the country. China has huge manufacturing capability. Most of the furniture of the world is made in China, which exports more than 40% of its total production.

As Mr. Shah, puts it, “I don’t think at least for another 6 months, China will come back to normal.” According to Ms. Khan, “Almost the majority of the companies and production units have shut down in China due to the outbreak. And many furniture buyers in India import Chinese furniture on a higher scale; certainly their business is going to witness a downfall for the upcoming months.”

The supply disruption from China if continued will see adverse effect on Indian businesses dependent on the country. China has huge manufacturing capability. Most of the furniture of the world is made in China, which exports more than 40% of its total production. Several companies from European countries like Germany and Italy have their production units in China. Raw materials for production of laminates specially design paper, hardware, machinery are some of the areas where companies are waiting for deliveries. The fact that Apple iPhones are dependent on the production and assembling in China says it all about the dependency of the world. Thus with the derailing of China’s production, not only India but the world gets affected.

According to Mr. Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII), as global GDP estimates are being downgraded by multilateral institutions because of Coronavirus, India, too, will have to evaluate the impact on its economy, especially with the country’s high dependence on Chinese imports. “The immediate requirement is to look for alternate sources of these products. Government-industry task force should be set up to create a strategy to handle the situation and avoid industry closures, job losses and price increases. At a time when a revival in growth is expected, a recalibration of such expectations may be required. Supply disruptions and price increases may lead to some setback in the next couple of quarters. As normalcy returns to China, a situation will emerge where Chinese producers will try to liquidate their inventories at a low cost.”

Commenting on the immediate impact due to shutdown of factories in China, Finance Minister Ms. Nirmala Sitharaman downplayed fears of any immediate price rise, saying there were no reports of immediate shortages. Some of the sectors majorly dependent on China also feel that it is the best time for them to begin production domestically, so that India is not dependent on imports from China. Though short-term issues look manageable, if continued for long, the impact is uncertain.

 

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