With the arrival of 2013 Union Budget, luxury cars, imported bikes and Sports Utility Vehicles (SUVs) have become dearer in the country as P. Chidambaram, Finance Minister, has proposed a hike in the custom and excise duty on these categories of vehicles. With this proposal, the custom duty on luxury cars will rise to 100 per cent from the current 75 per cent, whereas the import duty on two-wheelers (over 800 cc) will rise from current 60 per cent to 75 per cent.
The Finance Minister has also asked to increase the duty on SUVs from ongoing 27 per cent to 30 per cent; however exemption has been provided to those individuals who are using it for commercial purpose. With this rise, industry experts believe that the sales will witness a fall as the hike in duty is likely to be passed to price conscious Indian buyers. Speaking on the same lines, the Deputy Managing Director (Marketing) at Toyota Kirloskar Motor Private Limited, Sandeep Singh was quoted as saying, “We would pass on the hike and increase price in the same proportion as we cannot absorb the hike.”
The demand for utility vehicles with engine size of 1,500cc and above is also expected to witness a dip. However, the country’s largest utility vehicle maker, Mahindra & Mahindra, did not entertain any comments on the increase of duty. It must be noted that although the car sales were falling, the demand for SUVs remained higher in the Indian auto market.
Between April and January 2013, the sales in passenger cars segment have reduced by 1.8 per cent, amounting to 1,556,283 units. On the other hand, the demand for utility vehicles surged 56.9 per cent, which equated to around 451,935 units, during the same period (all sales figures are issued by apex auto industry lobby, Society of Indian Automobile Manufacturers).
Some industry experts also believe that the hike in duty will just have a temporary impact on sales, and the SUV segment will remain the most enchanted segment of the Indian auto industry. Expressing his views on the same lines, the Managing Partner at Roland Berger Strategy Consultants, Wilfried Aulbur, said, “We don’t see a major shift in demand.” He further said that it is only a matter of time that Indian buyers get used to the increased prices. With another increase in custom and excise duty, the luxury car makers are now forced to increase their localisation process to remain competitive in the Indian auto sector.
