This is the fourth year in a row, where the government of India has increased custom duty on imported parts of an automobile. The move is likely to hit the premium and luxury car makers who rely on imports of completely knocked down parts manufacturing in the country and not on completely built imports.
Addressing the budget session, N Sitharaman said the Government is raising customs duty on certain auto parts to 15% to bring them on par with the general rate on auto parts.
“Our Custom Duty Policy should have the twin objective of promoting domestic manufacturing and helping India get onto the global value chain and export better. The thrust now has to be on easy access to raw materials and exports of value added products,” she added.
The exact quantum of price increase is still being deliberated across all vehicle makers currently.
Martin Schwenk, Managing Director & CEO, Mercedes Benz India, the country’s largest luxury car maker told ET, the increase in the rise in auto component duties is unexpected in such revival period, and it will increase the production cost, leading to higher cost for consumers
Already reeling under the rising input cost and adverse currency movement, almost all the luxury car makers had increased vehicle prices in January by 2-4% and this move may lead to a further spike in prices by 1-5% depending on the vehicle makers. The vehicle makers may absorb a part of the cost hike and may pass on the cost partially to support improving demand.
Balbir Dhillon, head of Audi India agreed with his rival Mercedes Benz and says the increase in custom duty on parts will increase vehicle prices and Audi is considering the actual impact on its business before quantifying the hike.
“The auto industry is already burdened under high duties, GST, Cess and registration costs and we would like the Government and the GST Council to rationalize the whole tax structure, which eventually will lead to higher volumes and revenues for the state,” added Dhillon.
A move experts claim may barely have any significant impact, as the luxury car market in India still remains fairly sub-optimal at 20000 units per annum, and this may not trigger localisation due to low volumes. A spike in duty may eventually be passed on to the customers making vehicles dearer.
Gurpratap Boparai, Managing Director, ŠKODA AUTO Volkswagen India Private Limited, who oversees Volkswagen Group says the increase in customs duty on certain auto parts to 15% will further increase input costs and prices for cars which depend on specialised components which cannot be manufactured locally due to unviable volumes.
The imports of auto components dropped over 30% to Rs 37,710 crore (USD 5.0 billion) in April to September of FY-21 from Rs 56,066 crore in H1 2019-20. Asia accounted for 60% of imports followed by Europe and North America, with 30% and 9% respectively.
Auto component makers say there is a significant manufacturing competence in the country, and the move is to discourage Chinese imports into the country.
Deepak Jain, President ACMA, said, “Increase in basic customs duty on select auto components will encourage local manufacturing of such items.”