Budget 2018: Automobile parts, luxury cars get more expensive as custom duties increase

With the latest announcement of the Union Budget in the Parliament, Finance Minister Arun Jaitley, with the support of the Modi government, increased the custom duties on motorcycles and luxury cars from 10 per cent to 15 per cent.

This move has spilled water on the plans of many automobile companies as they wanted to make it big this time in the Indian markets. Apart from the custom duty imposed, the government has also hiked the rates of import duty which will now make the companies to spend and make in India.

Electric car makers were all set to get a push into the Indian economy since the government was heading towards an all-electric market by 2030, but the budget killed their high hopes with much higher custom duty.

The increase in the custom duty will be applicable on luxury car auto parts which are partially manufactured in India using kits from outside the country and are assembled in India.

Those vehicles, including both cars and bikes, which are imported into the country through kits for assembly are set to be raised and become costlier. Impact of this hike will be reflected on automobiles from companies like Mercedes-Benz, BMW, Audi, Volvo, Jaguar Land Rover, Harley-Davidson, Triumph, etc.

Companies like Tesla, which were set to enter the Indian market, might now trace their steps back.

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. The market sentiment had only recently become stable after the introduction of GST Cess. The budget clearly lacks a focus towards the luxury auto industry, which otherwise would have given us a better clarity to plan our strategy for the India market for short and long term. While as luxury car manufacturers, we are undertaking several initiatives in terms of investment to make the dream of owning a luxury vehicle more realistic for all, we also expect the government to support this industry. Lack of concrete measures for government's ambitious E-mobility project is surprising. However, investments in infrastructure and rural electrification are a welcome move as it will have a long term positive impact for automobile sector.”

“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,” said Roland Folger, Managing Director and CEO, Mercedes-Benz India.

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The budget brought a hope for the manufacturers of two-wheelers. “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,” said Yadvinder Singh Guleria, Senior Vice President, Sales and Marketing, Honda Motorcycle and Scooter India Pvt. Ltd.

Sudarshan Venu, Joint Managing Director, TVS Motor Company, said, “The Union Budget 2018/19 demonstrates government's intent to boost investments in rural development, education, healthcare and social sectors and will lead to continued and inclusive economic growth. The strong push for infrastructure will also support this growth agenda. The government's focus on supporting local manufacturing, skill development under Pradhan Mantri Kaushal Kendra and a heightened emphasis on job creation will lead to greater opportunities for the youth of the country.”

Sohinder Gill, Director, Corporate Affairs, Society of Manufacturers of Electric Vehicles (SMEV), said, “As the EV Policy is not a part of the budget, we were not expecting any major announcement related to electric vehicles in today's budget. The only thing we were expecting from the budget was rationalization of GST rate i.e. currently 12 per cent for EVs and 28 per cent for EV batteries. Also, we had requested that GST should be made at least either 0 or 5 per cent for initial years. But we didn't find any mention of the same. Perhaps it will be covered in the policy, later. Overall we are happy with the outcome of the budget.”