Considering the losing market sales in domestic industry and in order to protect the domestic manufacturers, Indian Government imposed a ban on import on duty free flat panel TV’s. Prior to ban and additional import duty regulation by the Indian Government, leading TV manufacturers, Samsung, LG, Panasonic and Sony were running their production capacity to only 60-70% and were refraining from making additional investment for expanding their capacity courtesy to low demand from domestic consumers. The decreasing domestic demand was a result of underground TV market being run by grey marketers who were being benefitted from duty free import and were cashing on price arbitrage in the Indian Market. According to a report, Indian TV Dealers for whom price arbitrage had turned into a lucrative business proposition, use to travel to South East Asia and Thailand, to purchase TV sets for a price at 40% of what is prevailing in the Indian Market. For Instance, a 32 Inch LED TV set costs around 32000-35000 in India, the same costs around 17000 in Thailand. Thus, for many years a shadow market was built where underground grey marketers used to account for 20% of total Indian Flat Television Market and were cutting the market shares of TV Manufacturers like Sony and Samsung etc.
Thus, in order to protect the Domestic Industry, Government on August 26th imposed a ban on duty free imports by passengers on Flat Panel TV sets which includes LED, LCD and Plasma TV. The ban has given an impetus to the domestic industry which was earlier. . However, the ban on import free duty, has given an impetus to the domestic industry which was earlier running into losses because of ruined sales and disturbed market dynamics by the grey marketers. Post the imposition of ban by the Indian Government, TV manufacturers are now running their capacity with full tilt and are also ready to make additional investment, considering the rise in demand by the consumers. The companies are also planning to import the TV sets from their Malaysia and Japan units to meet the sudden increase in domestic demand.
Economic View: Market Efficiency
However, if we consider the whole scenario from an economic point of view, we can be presented with the theories of demand, supply and market efficiency. For Instance, prior to imposition of ban, the TV suppliers were not able to obtain the price at which they wanted to sell because of low cost imports by the grey marketers. Thus, the society was not able to achieve efficient allocation of producer surplus and consumer surplus, which gave rise to deadweight loss in the society.
Supply
Deadweight Loss
In the diagram, Demand Curve is downward sloping curve while Supply is the upward sloping curve. The above diagram shows as how the market was being operated with deadweight losses prior to ban on duty free imports. E is the efficient equilibrium point where both consumers and suppliers of TV sets get maximum satisfaction with best possible consumer and producer surplus for both the sections of the society. However, the producers were not able fix the equilibrium price and also produce the output to their extent because of low demand from the consumers citing 40-50% low prices in the grey market. As a result, the producers were forced to fix price and output at level below their equilibrium level. Thus a deadweight loss was present in the society for a long time.
However, post the imposition of regulation by the Indian Government, the price arbitrage era saw its end and the producers were now able to fix equilibrium price and quantity. As a result, the consumers who were earlier able to capture the major section of producer surplus were now forced to pay equilibrium price to the producers which resulted in elimination of deadweight loss from the society. This was the result of higher price and increased equilibrium quantity by the producers.
Economic View: Demand and Supply Analysis
The regulation by the Indian Government also had an impact on demand and supply analysis in Indian Television Market. Prior to ban, the leading TV manufacturers were facing low demand for their produce and high unsold stock levels because of which they were not able to sell their produce at equilibrium prices. As discussed earlier, this was result of 40-50% lower prices of imported TV sets from Thailand and South East Asia. The diagram below will be a suitable explanation to the demand and supply situation prior to government regulation:
Before Imposition of Ban:
Here ‘P’ is the equilibrium price in the market, but because of lower demand by consumers, the suppliers were not able to sell their produce at equilibrium price, which also resulted in stock leftover. Thus, in order to sell their stock, the suppliers had to reduce their prices and produce output lower than the equilibrium quantity.
After Imposition of Ban:
The situation turned completely different after the Government imposed ban on decade free concession on import of TV Panels. The Indian TV market accounts for INR 20000 Crores and is expecting to grow annually by 75-80% after the ban imposition. Also, the import free ban by the government will be welcomed by increased demand from the consumers. Thus, the expected need in increase in supply by TV Manufacturers will be well supported by increasing demand. However, since the increase in demand will be more than increase in supply, it is expected that leading TV manufacturers will finally earn windfall gains from their produce. The diagram below will suitably explain the present scenario in TV industry:
The above diagram shows the where ‘E’ is the original equilibrium point and ‘P’ is the original equilibrium price, with introduction of regulation by the Government in TV Industry, the suppliers were induced to increase their supply because of increase in demand by domestic consumers. However, since the supply is expected to increase slowly and gradually with range of 25-30%, the 75-80% increase in domestic demand by the consumers will result in increase in equilibrium prices and high profits for the suppliers.
Thus, the imposition of ban on duty free import of TV sets was indeed a much awaited and well needed regulation for the TV Industry.
Works Cited
36.05 % duty on import of high-end TV sets. (2013, August 19). Retrieved January 24, 2014, from The Hindu: 36.05 % duty on import of high-end TV sets
Ban on duty-free flat screens effective as India sales of LED TVs soar. (2013, October 22). Retrieved January 24, 2014, from First Post: http://www.firstpost.com/business/ban-on-duty-free-flat-screens-effective-as-india-sales-of-led-tvs-soar-1186263.html
Mukherjee, W. (2013, October 13). LED TV makers Samsung, Sony, LG and Panasonic report rise in sales as duty curbs imports. Retrieved January 24, 2014, from Economic Times: http://articles.economictimes.indiatimes.com/2013-10-22/news/43288525_1_sunil-nayyar-sony-india-samsung-india
Parkin, M. (2011). Market Efficiency. In C. Institute, Economics (pp. 24-32). Boston: Custom.
