Budget impact: Mercedes-Benz & Tata Motors hike prices

Buying a new passenger vehicle in India is increasingly proving to be an expensive affair. Only two months after passenger vehicle prices were hiked across segments, the decision by the government in the Union Budget 2016 to levy infrastructure cess of nearly 5 percent on passenger vehicles has resulted in some carmakers raising prices again.

Mercedes-Benz India today announced that prices on all its vehicles in the country are set to go up by 3 to 5 percent, depending on the model, with effect from March 15, 2016.

The carmaker cited the imposition of an ‘infrastructure cess’ as well as an additional ‘luxury tax’ announced in the Union Budget 2016 as one of the reasons for the price hike.

Similarly, Tata Motors has also increased prices of its passenger vehicles in the range of Rs 2,000 to Rs 35,000, effective immediately, the carmaker said in a statement.

According to reports, other carmakers including Maruti Suzuki India, Hyundai Motors India and Mahindra & Mahindra might follow suit and announce their decision to hike prices over the next few days.

Roland Folger, managing director and CEO, Mercedes-Benz India also cited an increase in input costs as a reason for the rise in prices. “Contrary to our expectation of some relief in terms of rationalisation of duties, the introduction of additional duties and taxes in this year’s Union Budget has adversely affected our pricing. Moreover, the steady rise of input costs against the backdrop of a weakening Indian currency has further eroded our bottom-line,” he said.

Finance minister Arun Jaitley proposed an infrastructure cess of one percent on petrol, LPG, CNG-powered cars below four metres length and engine capacity not exceeding 1,200cc, 2.5 percent on diesel cars under-four metres length and with engine capacity of less than 1,500cc and 4 percent on other higher engine capacity cars, SUVs and larger sedans. He also proposed an additional 1 percent tax on purchase of luxury cars priced more than Rs 10 lakh.

The price hike, which comes at a time when the auto sector is grappling with weak demand, may result in a decline in sales in the near term. “The imposition of an infrastructure cess would increase prices of automotive products immediately. An increasing number of duties levied on automobiles is a cause of concern,” according to Pravin Shah, president and chief executive (Automotive), M&M Ltd.

More on Union Budget 2016:

- No funds for EV industry in Budget '16; announcement of Rs 200 crore likely this week

- SIAM calls the Budget a mixed bag

- Government’s long-term intent for green motoring not visible

- Auto stocks bear the brunt of a taxing Budget

- India Auto Inc comments on Union Budget 2016