Mon, 18 Feb, 2019

Fancy premium cars & bikes, prepare to shell out more!

In one stroke, Union Finance Minister Arun Jaitley, announced in his budget that there will be an increase in custom duty on automobiles brought to India by CKD (completely knocked down) route. Due to this, prices of a number of premium cars and bikes, which are very popular in Goa, are likely to go up. Karan Sehgal reports

26th February 2018, 02:35 Hrs

It’s a known fact that Goans love their motorcycles and cars. The more premium the automobile the more they fancy it. However, Union Finance Minister Arun Jaitley, announced in his budget that there will be an increase in custom duty on the import of cars and bikes coming to the Indian market through CKD (completely knocked down) route. As a result, people in Goa should be prepared to spend more on several cars and bikes they fancy.  

In his budget for 2018-19, Jaitley has increased custom duty on parts of cars and bikes being imported in India for manufacturing through CKD route from 10% to 15%. In the last decade, a very high number of automobiles are getting assembled in India through CKD route. Under this route, most parts are imported in India and then are assembled locally to manufacture premium cars and bikes.  

Consider Harley Davidson, for example. Almost all Harley-Davidson bikes being sold in India are manufactured in the country through CKD route. Their engines are manufactured in the US. Naturally then, the custom duty hike announced by Jaitley is likely to increase the price of Harley Davidson bikes.   

“The increase in customs duty on CKD and auto parts does come as a surprise. We are disappointed in the light of already high GST rates applicable in this segment. We will be working with our tax consultants to study the granular details and understand the precise impact of this on our imports. We have always tried to keep motorcycles as accessible as possible, but such tariffs do pose a challenge,” said Peter Mackenzie, Managing Director, Harley-Davidson India & China.   

Another source informed that apart from its touring bikes, all bikes Harley-Davidson sells in Goa are manufactured through CKD route. This includes very popular Harleys like Street, Streed Rod, Iron 883, Roadster, Fat Bob and Fat Boy.   

As of now, it is not clear that by what percentage the price of these bikes will go up, but, it is likely that price rise will happen.  Premium brands like BMW and Audi manufacture a lot of cars in India through CKD route, which are expected to become costlier thanks to Jaitley’s announcement.   

Calling the Union Budget 2018-19 as disappointing, Rahil Ansari, Head, Audi India said, “Increase in custom duty and introduction of Social Welfare Surcharge in lieu of an Education Cess (which is higher than the erstwhile Cess), is going to definitely affect the prices again, which will further confuse the customer. The market sentiment had only recently become stable after the introduction of GST cess. The budget clearly lacks a focus towards the luxury auto industry, which otherwise would have given us a better clarity to plan our strategy for the India market for short and long term.”  

Sources further revealed that Audi A3, Audi A4, Audi A6, Audi Q3, Audi Q5 and Audi Q7 are manufactured in India via CKD route. All these Audi cars are extremely popular in Goa.   

The penchant for premium cars and bikes is more in Goa due to state’s high per capita income. The share of premium cars and bikes sales in overall automobile sales is much higher in Goa than in other parts of India. Therefore, Goa’s market, in all probability, will be more affected due to Jaitley’s announcement than other states of the country.   

Ansari’s quote highlights the problems faced by the Indian car market ever since GST was rolled out on July 1, last year. Initially when GST was announced, tax rate was kept at a lower level on premium cars. However, soon in September 2017, the GST Council increased the tax rate on mid-sized, luxury and sports-utility-vehicles (SUV) cars, which had badly affected the market.   

Just around the time, the car market was getting normal again, Jaitley has announced his latest move, which will increase the price of cars and bikes being made in India through CKD route.   

Prashant Joshi, president of Goa Automobile Dealers Association (GADA), said, “Due to Jaitley’s announcement, GST on the final price of cars and bikes being made through CKD route will also increase. If you increase the custom duty, you increase the price on which GST is imposed.”   

BMW is another manufacturer, which makes a number of its cars being sold in Indian market, through CKD route.   

Sources within the company informed that BMW 3 Series, the BMW 3 Series Gran Turismo, the BMW 5 Series, the BMW 6 Series Gran Turismo, the BMW 7 Series, the BMW X1, the BMW X3 and the BMW X5 are all manufactured in India through CKD route. This means their price will possibly go up after Jaitley’s budget announcement.   

What is worrisome for manufactures like Harley-Davidson, BMW and Audi is almost their entire portfolios of cars/bikes are being made in India through CKD route. The manufacturers have to go for CKD route on account of several reasons.   

One, India doesn’t have the capacity to make all parts of certain automobiles locally from scratch. Two, sometimes, managements of auto companies find it better to import components and assemble in India for their own reasons.   

By increasing custom duty on parts coming from CKD route, Jaitley has also discouraged auto companies from setting up assembling plants in the country.   

As far as Goa market is concerned, the impact of Jaitley’s announcement will be significant and it will take longer for the market to become normal again.  

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