How The Indian Government Screws Its Automobile Industry

Faisal Ali Khan
by Faisal Ali Khan

The whole world is betting big on India and China. I don’t have much idea about China, but India definitely needs to move its game if it wants to become a biggie in the automobile sector. Scams, scams and some more scams is what India is becoming more famous for, resulting in a huge deficit for the government. This in turn results in hue and cry by the ministers, resulting in increased taxation.

Just recently the 2013-14 budget was announced. I have mentioned the small car definition before, but I shall re-iterate it once again for the benefit of all. Any car having a length of less than 4-meters, powered by engines less than 1.2-liter (gasoline) / 1.5-liter (diesel) in cubic capacity is considered a small car in India. These cars are subjected to an excise duty of 12 percent. Any car above 4-meters in length but falling in the above engine capacities is charged with 24 percent excise duty. Then there are those cars which are neither 4-meters in length nor falling in the above engine capacities: 27 percent excise duty.

Many car makers have tried to play around the rules and trimmed bumpers to fit in the under 4-meter category. The Ford EcoSport is one such vehicle. It is a small car according to government definitions and will be subjected to lesser duties. Ford was delaying the EcoSport launch hoping the Government would reduce duty by 2 percent to 10 percent on small cars. This was the prevalent duty a couple of years back.

To create more revenue, the Indian Government created a new tax, casually referred to as the SUV tax (not applicable on taxis). According to the new ruling, SUVs will be charged 30 percent excise duty, instead of 27 percent. This news came as a shock to manufacturers. More so, because while all other segments were showing decline, the SUV segment was showing a good growth and was looking promising.

The finance minister claims that SUVs occupy more space on the roads and hence should be taxed more. Wait a second, most of the popular SUVs are not even as long as the Honda Accord. But if he meant SUVs occupy vertical space, then how is that a bother?

Don’t be shocked, because the worst is yet to come. So what is an SUV? The government has defined an SUV as a vehicle which is more than 4-metres in length, having an engine capacity of more than 1.5-litres (gasoline or diesel) and a ground clearance of 170 mm or more. This has led to many sedans being classified as an SUV, being subjected to higher duty. The reason why sedans have such ground clearance is, so they don’t scrape their underbody. Indian roads are in horrible condition and one can’t really drive a car with low ground clearance without gradually damaging the underbody over time. I know I had a Honda City (Jazz/Fit sedan) and the rubber under the front bumper kept falling every two months!!

In other bad news for the Indian auto industry, the Government has hiked excise duty on imported cars from 75 percent to 100 percent. The new Range Rover costs over $4,00,000 and is going to get even costlier now. The Porsche range is now going to be dearer by $50,000 to $2,00,000 (remember I said costlier, add the base price and you know how expensive it is to buy a Porsche in India), Ouch! Even the duty on imported motorcycles has been hiked from 60 percent to 75 percent. If you hear news about the Indian car market being wobbly, now you know why.

Faisal Ali Khan is the editor of MotorBeam.com, a website covering the automobile industry of India.

Faisal Ali Khan
Faisal Ali Khan

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  • Big Al from Oz Big Al from Oz on Mar 04, 2013

    Just the other day at work I was talking to an Indian guy. I asked him what the difference between Australia and India is. He said you don't have corruption. His brother wanted to build a house in India and the town planner told him his house plans didn't meet the local building codes. He was pointed in the direction of the town planner and told to offer some incentive to allow the plan to pass approval. As for the Indian tax system. Even as complex as it is it only supports beauracracy and government "sponsored" business. This keeps wealth in a few hands. Most complex tax systems with "left" leaning modelling has money redistribution to the lower classes. How well is the money flowing down with the current tax regime? But in all honesty India will gain traction and mend its ways. How many years this will take I don't know. As the middle class slowly develops they will demand change and the rise of China will encourage change. Some people don't realise this, but India did go to war against China in 1962. This was caused by China trying to expand its borders in the Assam state (NE India). India has always been the country that is almost there, but seems to stumble due to government inefficiencies. India could offer significant growth postitively impacting the globe.....if it wasn't for their corrupted, antiquated and ill equiped system of democracy.

  • Camchennai Camchennai on Mar 04, 2013

    What we read here is a high level story and not the entire ground reality, while it is true that government keeps increasing the taxes and tried to tax the rich, the bad part is that not every earning citizen of India pay their tax!! By and large most of the tax payers are the ones who are employed, most of the business grades and other small time players doesn't even pay tax, they find their own way to escape from the tax net. If everyone pays their tax, government doesn't needs to snap tax on fuel, imported automobiles and new cars. Problems lies within people and not with the government

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