Current age belongs to innovation, rather disruption. Panel being a very traditional industry and the user too is very habituated to use plywood , has taken many years to even adopt the new age products like MDF, pre-laminated boards and particle boards. Western World saw the change about 15-20 years ago and India is coming off age now. Coming years should see a faster migration from plywood to these other products.
In the mean time the world has evolved, and many other products which replaces ply, MDF, PB (particle board) in many formats and applications have arrived. Some of them are cement fibre board and wood plastic composite. These products have advantages of being absolute water proof, total termite proof, sound proof, bad conductor of heat and many more. These are revolutionising the industry and beyond. The cement fibre board will revolutionise the construction industry in the immediate future.
The immediate future will see the market changing from traditional products to these new age products. We also expect MDF and prelam boards to replace the cheap plywood , which has very low quality and mostly survives on tax adjustments. The industry thus will migrate from largely unorganised to organised in next few years also.
The GST antidote
Presently wood panels pay an excise duty of 12.36 % and over that a VAT of 14%, a total of 28%. There are entry taxes also at places , which for the moment I will not take into account. Once the GST comes in, which is proposed at 18%, our taxes go down by 10% . That reduces organised players’ prices in the market by 10%. On the other hand , the unorganised player will be forced to pay the full 18% due to the operating procedures of GST. Presently the manufacturers profit by not paying excise and the traders profit by not paying VAT (as VAT is paid at point of sale). With GST the trader loses his benefit and thus will insist on full invoice. Lower tax of 18% will demotivate corruption and tax avoidance. This will reduce the present price diff of 40% to 20% ( between organised and unorganised players). At that difference many customers will be motivated to buy a better plywood with guarantee and service.
There are many who still think , traders or small manufacturers will still be able to manage tax evasion. But I hope they will look at how the stock market has gone from a market of black money to absolute no place to black money. GST will do the same to industries where there are tax evasion. Wood panel will transform into an industry, a recognition it deserves but still does not have.
Thus the above two major changes will push the Indian Panel industry into lime light and in fast lane. With present Govt’s focus on money distribution directly to the deserving, we can expect a major economic change in people at village level. This will certainly push the low cost housing sector and thus the uses of such low cost alternatives for housing.
The time has come for the industry to transform from a caterpillar to butterfly.
Credits ET Realty