How The Indian Government Screws Its Automobile Industry

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 %. Any car above 4-meters in length but falling in the above engine capacities is charged with 24 % excise duty. Then there are those cars which are neither 4-meters in length nor falling in the above engine capacities: 27 % 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 % to 10 % 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 % excise duty, instead of 27 %. 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 % to 100 %. 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 % to 75 %. If you hear news about the Indian car market being wobbly, now you know why.