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The recent move to increase cess on large cars and SUVs, barely six weeks after the Goods and Services Tax was launched, could prove to be a huge setback to automakers.
The worst affected will be Mahindra & Mahindra, Toyota Kirloskar Motor, Mercedes-Benz India and BMW whose bread-and-butter business comes from these products.
The cess will now be up to 25 per cent from the originally prescribed 15 per cent while the GST levy remains at 28 per cent.
In other words, the overall levy for large cars and SUVs (which are over four metres long with engine capacities of over 1.5 litres for diesel and 1.2 litres for petrol) will be 53 per cent. How this affects customer demand remains to be seen though it is a fair bet to assume that sentiment will be temporarily impacted before making a gradual revival.
Brands like the Innova Crysta are well established though it still does not take away the fact that a dramatic price increase, following a substantial reduction, does not quite portend well.
As customers queue up at showrooms to book their vehicles before the increased cess becomes a reality, manufacturers will be hard-pressed to plan their production and delivery schedules. What could be worrying some of them is that there have just been too many uncertainties in recent times, which makes the entire process of preparing a business plan even more difficult.
The eight month diesel ban in Delhi on 2000cc vehicles was a big blow to Mercedes and Toyota. Demonetisation also impacted sales of automakers in a big way while the Supreme Court verdict on clearing up Bharat Stage III stocks in less than three days was also a big challenge. There was considerable cheer when GST was launched especially when it meant that SUVs and large cars would become less expensive.
However, with the cess now poised to be hiked considerably, the overall tax structure could even be higher than the pre-GST levels.
Should that actually happen, it will hardly help the cause of an industry, which accounts for nearly 50 per cent of the country’s manufacturing GDP.
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