- Ravi Prakash
Planning to buy a new TV, AC, fridge or washing machine this festival season? Shoppers may be in for a shock. The festive period usually brings discounts, cashback, exchange offers and no-cost EMIs, but this time the situation looks different. Manufacturers of electronics and home appliances are preparing to raise prices from October 1, and industry sources say the prices of some products could rise by as much as 5 to 8 percent.
ACs to Be Hit the Hardest
AC prices are likely to rise more than those of other products. Daikin India has already raised AC prices by 8 to 10 percent from September 16. Haier India has announced a 5 percent increase from October 1, while Blue Star is also signalling that it will raise AC prices.
The hikes are not limited to air conditioners. Several companies are also planning to raise the prices of LED TVs, fridges and washing machines by 2 to 3 percent. The entire home appliances manufacturing sector is facing mounting cost pressure.
Copper Prices the Main Driver
Rising copper prices are among the main reasons behind the increase. According to Haier India, copper was priced at 8,000 to 9,000 dollars per tonne last year and has now climbed to 14,500 dollars. Manufacturing one AC requires 3 to 4 kg of copper, so the cost of making an AC rises along with copper prices.
Higher manufacturing costs increase the burden on companies. They may absorb the additional cost for some time, but it is not possible to bear a continuously rising cost in full, so part of the burden is passed on to consumers. Industry sources say this is exactly what is happening now.
Besides copper, the costs of aluminium, steel, plastic and transport are also going up. Fluctuations in the rupee-dollar exchange rate are adding to the pressure on companies, and the situation in West Asia is also affecting prices.
Up to 15 Percent by January?
There are signs that the increases may not end in October. According to the plan shared by Haier India, prices could rise by about 5 percent in October, another 5 percent in December and a further 5 percent in January. If raw material costs stay at current levels, the company estimates that the prices of some products could rise by around 15 percent in total between October and January.
However, this does not mean the price of every AC in the country will rise by 15 percent. It is only the plan announced by Haier, and other companies will decide according to their own circumstances. Even so, it should not be assumed that the hikes will end completely on October 1.
TV Prices Also Affected
Along with ACs, TV prices are also likely to go up. Rising prices of memory chips, higher transport costs and costlier raw materials are affecting TV manufacturing. According to some industry estimates, prices of small-screen TVs could rise by up to 20 percent and those of large-screen TVs by up to 10 percent.
Prices will not shoot up suddenly from midnight on October 1. The market already holds stock that traders bought at old prices, and they may continue to sell it at current rates for some time. Industry sources say this old stock is likely to last 30 to 45 days, so the impact of the hike may not be very visible until then.
Why Prices Rise Despite Tax Cut
Last year, the Goods and Services Tax on ACs, large-screen TVs and large home appliances was reduced from 28 percent to 18 percent. However, when manufacturing costs rise, the final product price can go up even if the tax rate is lower. In August, retail inflation in the country stood at 4.82 percent, while wholesale inflation was 9.92 percent, a gap of nearly 5 percent.
This indicates that although companies’ manufacturing costs are rising, the full burden has not yet reached consumers. Companies have been absorbing the higher costs out of their profits for some time, but this cannot continue indefinitely. The price rise now visible in the home appliances sector may be part of that adjustment.
Is There a New Inflation Threat?
It would not be right to say that a new inflation crisis has arrived in the country merely because AC and TV prices are rising. What is clearly visible, however, is that raw material cost pressure on businesses is increasing.
Some companies may absorb part of the increased cost themselves, while others may raise prices. Some may keep sales going by offering discounts, and others may change the way they manufacture their products. The impact will therefore not be the same for every company.
Why Hikes Ahead of Diwali
There is another major reason why price increases are being discussed before Diwali. The festival season is one of the periods of highest purchases in the country. Industry estimates say that during the season running from Onam through Dussehra to Diwali, 30 to 40 percent of total annual appliance sales take place.
The season is therefore extremely important for companies. But costs have now risen. If they raise prices, purchases may fall, and if they do not, profits may fall. Companies are trying to balance the two, and that is why each is following a different approach.
Should Consumers Buy Before October 1?
There is no need to assume that consumers will lose heavily if they do not buy before October 1. Goods may be available at good prices from the old stock, allowing buyers to purchase without being affected by the price hike.
If raw material prices remain at the same level, companies are likely to keep passing the burden on to consumers, so price increases may continue in the coming months. Consumers should therefore consider not only how much they will spend this Diwali, but also how much more they would have to pay to buy the same product by January.