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Suresh Krishnamurthy

FOR THE major players in the consumer durables industry, the historical trends seem to indicate only one thing: The need for a decline in prices for an expansion in market size to materialise. The share of durable goods in the consumption expenditure of the Indian private sector declined from 2.50 per cent in 1995-96 to 1.45 per cent in 1999-2000.

Interestingly, the volumes of televisions, refrigerators, and washing machines increased in this period. The inescapable conclusion, therefore, is that growth has been driven only by falling prices.

If prices are not reduced, growth will not materialise. That sales growth in 2001 was accompanied by price erosion is a pointer to this. This trend is likely to continue. Volumes will rebound to the levels seen in late 1990s only if prices fall. Otherwise, even if rural incomes rise, there may only be limited volume growth. Consequently, margins will continue to remain under pressure.

The widening gap between televisions and other major durables — refrigerators and washing machines — also suggests this. The size of the refrigerators and washing machines market around 67 per cent and 33 per cent of the televisions market in 1998 are now around 60 per cent and 20 per cent of the size of the television segment. In other words, the gap between refrigerators and washing machines have widened instead of narrowing.

Between 1998 and now, the sales volume of televisions increased from around 3 million to 5 million. In the case of refrigerators, it increased from 2 million to 3 million, and for washing machines from around 0.8 million to just above a million.

In short, the gap between televisions and the other two durables has widened. The reason — television prices dropped sharply in the intervening period while that of refrigerators and washing machines did not.

So, what are the prospects of a drop in prices? As of now, the benefits in the form of lower costs have not materialised and the outlook does not appear bright. Consequently, there are few avenues. The most important is for the Government to reduce taxes levied on this segment — excise, sales taxes, and import duties have to come down. These, however, may come down only over the longer term.

In the interim, especially over next year, the scope for a decline in the incidence of taxes and duties appears limited. The other way out is for competitors to band together and agree to a cut in marketing costs. Savings can be routed to reduce the price of the products and expand market size. Failing them, consolidation of market shares through closures or mergers and acquisition activity is the only way to reduce prices and grow the market at a time when the resource constraint resources is proving to be a big handicap.

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