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Foreign car-makers would have to advance their investment plans to set up full manufacturing facilities in the country, as a follow through of the Government's move to triple import duty to 30 per cent for cars imported as completely knocked down (CKD) units (with pre-assembled power train parts).
An official from the Society of Indian Automobile Manufacturers (SIAM) told Business Line , “Auto companies, which had more long-term plans for full-scale production in India, would now have to advance them to a much earlier date, maybe as early as the next three months. They will have to set up an engine plant in India.
“The automakers understand what the Government wants and are reconciling to the fact that this has to be done now and there's no way around it.”
Global auto majors, mostly in the premium-end, such as BMW, Mercedes-Benz and Audi assemble their higher selling models in India from CKD kits, while other models are imported as completely built units (CBUs). Even Renault, Volkswagen and Jaguar Land Rover's upcoming plans may may be impacted.
The CKD rate
Before March 1 this year, all CKDs attracted 10 per cent customs duty, while CBUs were charged 60 per cent customs. However, a customs notification dated March 24, 2011 has increased the import duties to 30 per cent for passenger cars imported as CKDs, which also have an “engine, gearbox and transmission mechanism in pre-assembled form but not mounted on a chassis or a body assembly.”
CKD imports where the powertrain parts are not pre-assembled would still attract 10 per cent customs, while the duty for CBUs remains the same. The March 24 notification is actually lower than the original proposal for a 60 per cent import duty on CKDs with pre-assembled power train parts, which is on par with CBUs.
While a price increase for few models could be expected, an industry official said companies may look to absorb part of the increased costs till an engine plant is ready. Models immediately affected include the Mercedes-Benz C, E and S Class, the BMW 3, 5 Series and the X1 and Audi's A4, A6 and Q5.
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