He is now India’s first citizen, president of the republic but as finance minister, he had the luxury car sector more than a tad worried. In his last Union Budget, presented to parliament in February 2012, Mukherjee increased the customs duty on completely-built-units or CBUs from 60 percent to 75 percent.
This had its most telling impact on India’s luxury car market. The big three – Mercedes-Benz, Audi and BMW – are competing aggressively for what is increasingly a slowing market and this decision was not music to their ears. These companies typically use the CBU route to bring in key models as a brand showcase while CKD-assembled kits provide the numbers.
With Mukherjee’s decision to up CBU import duties, all the luxury car manufacturers are looking at local assembly for their upcoming products. One of the first was Mercedes-Benz India which has showcased the B-class and hopes to bring in this vehicle as well as the A-class in CKD. This will help the company meet customer requirements more quickly as well as presumably price the cars more aggressively.
Apart from Mercedes, the other players including Volvo Cars and Jaguar Land Rover have outlined plans for CKD operations. CKD assembly necessitates investments which leads to job creation and that as well as revenues into government coffers would be the likely reasons for the government’s decision to rework the duty structures.
In addition, in his last Budget as finance minister, Mukherjee also raised excise duties across the board by two percent, in the process upping the duties even on cars that are under four metres long from 10 to 12 percent, a special sop that had warmed the cockles of OEs with compact cars.
In the run-up to the 2012 Union Budget, talk was rife about a tax on diesel-engined cars which, eventually, did not see the light of day. So the automotive sector did breathe a sigh of relief. It remains to be seen what the current incumbent in the ministry decides to do as the diesel issue continues to vex the government think-tank.
BRIAN DE SOUZA
Photograph: Press Information Bureau, Government of India