The Indian auto industry was dealt with yet another blow as the government decided to increase the custom duties on cars, bike and components which are brought to India in a CKD or completely knocked down forms. In a bid to further the 'Make In India' campaign, Finance Minister Arun Jaitley has announced that the basic custom duty on specified parts/accessories of motor vehicles, motor cars, motor cycles will be increased from 7.5 per cent - 10 per cent to 15 per cent. This could result in increase of cost for engines, components, gearboxes and so on and so forth. The domestic auto component industry is a $ 43.5 billion industry in itself.
| Automobile and automobile parts | Previous Custom Duty Rate | Current Custom Duty Rate |
|---|---|---|
| Specified parts/accessories of motor vehicles, motor cars, motor cycles | 7.5 per cent/ 10 per cent | 15 per cent |
| CKD imports of motor vehicle, motor cars, motor cycles | 10 per cent | 15 per cent |
| CBU imports of motor vehicles | 20 per cent | 25 per cent |
| Truck and Bus radial tyres | 10 per cent | 15 per cent |
Source: Arun Jaitley Budget Speech, Annexure 6
Kavan Mukhtyar, Partner and Leader, Automotive, PwC India said, There were several industry expectations on supporting R&D, electric vehicles, and safety which did not find mention in the budget. Measures to streamline GST rates and compliance process especially for MSME were not announced as part of the budget.
Overall we see this budget as focusing on the basic building blocks of the economy - Rural Agriculture, Infrastructure and MSMEs. These will translate into demand boosters for the Indian Automotive sector in the medium term. The push for localisation will have a positive impact on automotive component and supplier industry.
Also Read: Budget 2018; How It Affects The Indian Auto Industry
Also, the custom duty on completely knocked down or CKD imports of motor vehicle, motor cars, motor cycles will be increased from the current rate of 10 per cent to 15 per cent. The custom duty on completely built unit or CBU imports of motor vehicles will go up from 20 per cent to 25 per cent.
And lastly, the duty rates on truck and bus radial tyres will go up from 10 per cent to 15 per cent. Arun Jaitley also said that the custom duty increase will help incentivise the domestic value addition in these segments.
Rahil Ansari, Head, Audi India said, "For the luxury auto sector, the Union Budget 2018-19 is disappointing and is against the spirit of partnership. As manufacturers, we have a core social responsibility towards our workforce and the dealer network. 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.
These only lead to the fact that the prices of all cars and bikes, which are brought to India via the CKD route or the CBU route, will see an increase. The exact percentage is yet to be seen but premium car makers such as Audi, Mercedes-Benz etc are already voicing their displeasure on this announcement.
Roland Folger, Managing Director & CEO, Mercedes-Benz India, said, "The increase in the basic customs duty of auto parts, accessories and CKD components varying from 5 per cent to 10 per cent, clubbed with the new Social Welfare Surcharge at 10 per cent, at a time when the auto industry is reviving, is unfortunate, and comes as a surprise. We believe it is going to impact the auto industry, the consumers and is also against the spirit of 'Make in India'. The auto industry ended 2017 on a positive note, where it grew despite multiple policy disruptions in the previous year; but the customs duty hike is likely to reverse the growth trend.
Two-wheeler manufacturers saw some positives in the 2018 Budget though. For example, mass market manufacturers such as Honda and TVS were happy with the the proposals laid out by Arun Jaitley.
Yadvinder Singh Guleria, Senior Vice President - Sales & Marketing, Honda Motorcycle & Scooter India Pvt. Ltd. said, "The Government announcements in Budget 2018 too should accelerate rural demand. With firm thrust on rural economy is evident from increasing Kharif crop MSP to 1.5 times the production cost. The infrastructure focus of the government is very strong on rural areas and highways. With almost 50 per cent of two-wheeler demand coming from rural and semi-urban India, Budget 2018 should have a positive impact on customer sentiments."
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