RELATED ARTICLES |
The FTA with EU, which may be signed as early as July, will make imported luxury and super luxury cars like Rolls-Royce, Bentley, Lamborghini, Aston Martin, Bugatti Veyron, Koenigsegg Agera, Maserati, among others, much cheaper than now.
Many of the luxury models available through Indian subsidiaries of foreign carmakers are actually imported in completely build units. CBUs attract 60 per cent import duty; plus there are countervailing duties and state taxes.
All this adds up to a daunting 110 per cent duty on imports. That’s why these cars are so expensive in India.
Some pricey cars are assembled in India from completely knocked down (CKD) components. These CKD imports attract a basic customs duty of 30 per cent.
In FTAs, the duties are usually set lower. The industry wants the basic custom duty reduced from 60 per cent to 30 per cent. It is not yet known at what levels the duty will be set in the FTA with EU. But it is certain that it will be lower than 60 per cent. If India agrees to the industry demand, then the duty on CBUs and CKDs will be the same: 30 per cent.
This is bound to have an impact, in varying degrees, on all carmakers in India rolling out expensive cars. “If the government opens up this sector, the impact could be significant on the manufacturers and it may help them speed up their plans to introduce in India newer models, which are already on sale in Europe,” said Ashish Chordia, chairman of the Shreyans group, the sole importer of Maserati and Ferrari cars in India.
He said though the industry had been talking about a duty cut of over 30 per cent, it was anybody’s guess if it would be passed on to car buyers. “But one cannot ignore the counter-effect on the current models as prices for their CBU models may come down to the vicinity of their CKD models, ” said Chordia.
In the event of a 30 per cent cut, Aston Martin of James Bond fame that is currently the most expensive car in India at Rs 20 crore can be bought for Rs 14 crore; the Rs 16 crore Bugatti Veyron will be available at Rs 11.2 crore and the recently launched Koenigsegg Agera at Rs 12.5 crore will come at Rs 8.75 crore. Even Rolls-Royce Phantom could be bought for Rs 2.5 crore, much cheaper than the current price tag of Rs 3.5 crore, while Rolls- Royce Ghost and Mercedes S65 AMG would be Rs 50 lakh cheaper than the Rs 1.75 one has to pay now.
Automobiles have been kept out of all FTAs so far. “But considering that EU is our largest trading partner, we see a huge market for Indian components there and, therefore, intend to open up our auto sector to EU players as part of the bilateral trade pact,” a senior commerce ministry official told Financial Chronicle. The 27-member EU is India's largest trading partner with bilateral trade touching $75 billion in 2009-10. The pact is expected to increase two-way trade by 30 per cent.
“The deal, if it goes through without any limitation clause, will make luxury car prices in India nearly comparable to prices within EU. This will immediately push the market for super luxury cars by 30-40 per cent in India,” Pooja Choudhary, managing director of Infinity Cars that imports Aston Martin cars, said.
This may not be good news to BMW and Mercedes Benz. As a top official of one of these German carmakers in India said that if the duty on super luxury CBU cars came down to the level of luxury CKD cars assembled by them in India then it might hit the profitability of their India operations as the mark- down on super luxury models would contract the price differential between luxury and super luxury cars. The official requested not to be named in this report.
According to Abdul Majeed, automotive head at PwC, the move will benefit Indian original equipment manufacturers (OEMs) and component manufacturers in the long run. “Going forward, these companies would not be able to survive by just importing CBUs and will eventually be forced to set up manufacturing operations here to derive the cost advantage that India offers,” he said.
Importers of luxury cars are doubt the government would actually allow prices to go down. “There is all probability that government may impose additional levies if it opens up the auto sector as a result of which there may not be much impact on prices.” Said Yadur Kapur, the exclusive importer of Rolls-Royce in Delhi.
These cars are a huge source of revenue for the government which may not allow completely duty- free imports at a time when it plans to increase the contribution of the manufacturing sector to GDP, according to Kapur.
The Society of Indian Automobile Manufacturers (Siam) does not want India to give in to EU pressure. Else, it will discourage companies to set up factories in India.
“Demand has flattened in Europe and, therefore, luxury carmakers are now looking at India as a potential market. We have given liberal market access through the investment route and not trade route as it would impact manufacturing in India. Hence, EU is pressuring India to open up the automotive sector so that it can sell more cars at cheaper rates,” Vishnu Mathur, Siam director general said.
On the other hand the commerce ministry does not believe that allowing imports of luxury cars at a cheaper rate will drastically impact the domestic industry, as these constitute a minuscule proportion of all cars sold here.
According to Siam, a mere 350 cars of super luxury cars priced above Rs 1 crore were sold in India last year when the number of luxury cars, priced between Rs 25 lakh and Rs 1 crore, sold was 16,000, the latter indicating a growth of 25-30 per cent in one year. The overall domestic car industry is huge at 1.98 million cars sold in 2010-11; luxury as well as super luxury cars accounted for less than 1 per cent.
The Indian luxury market as a whole is forecast to treble to $15 billion by 2015 from $ 4.76 billion now, as per global consultancy AT Kearney. Still, India is way behind China’s at $9.6 billion.
 Limited.JPG)
Post new comment