Car makers could soon be facing competition from domestic rivals and also cheaper imports and vehicles which run on clean fuels.
NEW DELHI: If a section within the government has its way, car makers could soon be facing increased competition not only from domestic rivals but also cheaper imports and vehicles which run on clean fuels. Just days after officials from the department of heavy industry indicated that there was a proposal to offer excise duty sops to large cars and bring them on a par with their smaller ones, it now transpires that they are also considering a drastic reduction in import duties on passenger cars. Apart from an all-round customs duty reduction, the department is also considering a proposal to bring down customs duty for hybrid vehicles - cars which run on regular fuels and self-generated electric power - and other clean fuel vehicle imports to zero.
At present, the customs duty on new completely built units (CBUs) is 60% whereas imports of second hand cars attract 100% duty. This, when combined with myriad other levies such as countervailing duty (CVD), national calamity duty, and education cess pushes up the cost of importing a brand new car to more than double its original price.
Then, duty on completely knocked down (CKD) kit imports also hovers around 40%.
Currently, imports of hybrid and fuel cell-based cars do not get any special incentives. This is one of the major reasons why companies such as Toyota (which sells the hugely successful hybrid Prius) and Honda are not thinking of selling imported hybrids in India.
Says a senior official in the department of heavy industries: “We need to heighten competition in the passenger car market. There is already a school of thought which favours rationalisation of excise duty on all cars, irrespective of their length. We are now considering whether to halve customs duty also, in a bid to encourage car imports”.
While reduced import duties are certain to bring cheer to many international car makers in India such as Toyota, Honda, Skoda and Ford, any concessions for the import of clean fuel vehicles would also be welcome. A spokesperson for Honda Siel Cars India said that the company would be happy to bring its hybrid and fuel-cell cars to India if the import duty is brought down to zero. Similar sentiments were echoed by Toyota officials, who said that the Prius (which costs about Rs 15 lakh in Japan) would be brought to India only if duties are waived.
But will lowering import duties hurt domestic players and any future investment plans of international car makers in India? An industry expert said that such a move is unlikely to have any major impact on investment inflows into India, since the country wants to become a global hub for small cars - and what will ultimately get imported into India would be larger, premium vehicles.
Then, the move to consider waiving customs duty for clean fuel cars comes even as the government is preparing a comprehensive policy for indigenous development of hybrids, wherein it will bear at least 50% of the cost of developing such vehicles.
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