IKEA may face tariff test in India post the latest customs hike: Report

IKEA, the Swedish furniture giant, has had a spate of bad luck in the country of late. On the heels of its troubles with creepy crawlies comes the government's recent effort to curb imports. The company told The Economic Times that the import duty hikes will push up costs in India and could hamper business sentiment.

"Trade barriers such as import duties are against ideas of a global economy and ease of doing business and will lead to higher costs in India, which is not customer friendly," said deputy country manager Patrik Antoni, who reports to Ikea India CEO Peter Betzel. He added that the company was still gauging the impact of the move and wouldn't be able to comment on whether it would raise its prices or not.

On Wednesday, the Centre hiked import duty on 19 'non-essential items', including washing machines, refrigerators, footwear, jewellery, furniture fittings, air-conditioners and aviation fuel. This was done to not only support the falling rupee but also narrow the current-account deficit from a five-year high. According to a government statement, the total value of imports of these items in the last fiscal was about Rs 86,000 crore. The increased duty is likely to yield about Rs 4,000 crore in revenue.

IKEA, the world's largest furniture retailer with 38 billion Euros in annual sales, made its India debut last month and about 40,000 people visited the Hyderabad store on the first day. The Swedish company's entry marked one of the most significant overseas investments in India. Significantly, it reportedly plans to take up the count to 25 stores across nine cities by 2025, and kick-off online sales when it opens its second store in Mumbai next year.

Recognising that India is a very price sensitive market - annual per capita income was just Rs 1.13 lakh in the last fiscal - IKEA so far has been deliberately looking to keep prices lower in India than it typically does elsewhere. "Every day we strive to cut unnecessary costs in our supply chain to achieve our goals of offering affordable home furnishing products," Antoni told the daily, adding that IKEA is committed to creating the best possible value for its customers.

The trouble is that the company imports most of the products it sells, and many are covered by the latest customs duty hike. The list includes tableware, kitchenware and household items made of plastic and travel bags, among others. According to companies, with this hike the prices of air-conditioners, premium refrigerators, washing machines, shoes and suitcases will go up by 3-5% while premium imported shoes will be dearer by about 5%.

The buzz is that the hike will prove a dampener for the upcoming festive season, especially where large appliances are concerned. The basic custom duty on ACs, refrigerators and washing machines has now been doubled to 20%. According to Haier India president Eric Braganza, this would lead to increase of prices and may have impact on the coming festive season sales, which constitutes around 30% sales of the industry.

With PTI inputs

Edited by Sushmita Agarwal