Why the import duty hike on cycles?

In times of high oil price, the Budget should have encouraged the use of cycles.

In times of high oil price, the Budget should have encouraged the use of cycles.

It is an irony that higher import duty for bicycles and bicycle components was disclosed in a Budget tabled in the shadow of India's rising fuel bill. While the automobile industry got away with no major body blow, cycling — it burns no fuel except human energy, is environment friendly and healthy — got hit.

Not elite

India is a big cycle market (around 17 million units) and a major producer of bicycles with one manufacturer — Hero Cycles — labelled the world's biggest.

Thanks to protective barriers and cheap price points, for decades, India made working class bicycles. Simple in engineering, these models got indigenised. Light frames and gears remained distant.

As the economy opened up, local manufacturers fiddled with cycle design. Prolonged focus on domestic market meant they trailed overseas brands in design and performance-DNA. Used to business backed by volumes, they were also risk-averse.

A major shift occurred with the debut of a cycle company that was the only brand, design and retail experience with cycles imported for sale in India. Firefox bucked industry cynicism and survived. The big players responded with new models.

Gradually, the market's centre of gravity began inching up the price ladder. Today, while the mass market roadster continues to sell, the emergent hope of India's cycle market — variously called fancy segment, up-market and premium — ranges from Rs 6,000-7,000 to Rs 15,000.

This is about 400,000 units, but crucially this is where the future is playing out. At the top of this segment are high-end imported bikes retailing upward from Rs 18,000 to even Rs 500,000. This is a small category. A few Indian models exist here.

So, when the Budget hikes Customs duty for imported bicycles and bicycle components, its impact would be limited to elite clientele, right?

Import duty hike

Courtesy, controlled economy, the Indian bicycle industry, although selling big numbers, was technologically weak till recent times.

When Indian brands hawk alloy, aluminium or carbon fibre-bikes, there is usually imported stuff involved. Such dependence spans gears, rims, tyres, shock absorbers etc. Some of these international component brands, like Shimano, are iconic.

Their technical details and performance-DNA are closely followed by Indian consumers in the Internet age (as was news of Friday's import duty hike).

Currently, big Indian cycle companies have imported bicycles (or cycles with imported components) clad in domestic brand, welcoming customers to the premium segment.

Imported components are present in children's bikes sold for Rs 5,000. The pro-duty lobby is said to have evolved around opposition to large imports of children's bikes.

Unfortunately, the import duty hike makes no distinction between cycle categories. If you take Rs 5,000-6,000 and upward as the zone of budget impact, then you are looking at not merely the very rich on their imported cycles.

It also includes middle-class kids and youngsters who began enjoying geared bikes, light cycles and full suspension bikes only recently under a liberalised economy. There is import content in several Indian models. That's what happens when industry plays catch-up. Whose fault was it?

Indigenous industry

Will the higher duty catalyse indigenous manufacturing? China and Taiwan didn't bank on a domestic bicycle market to build world-class manufacturing competence.

They faced the world and changed the bicycle industry, while India looked on. In premium bikes, theoretically, higher import duty should prompt localisation.

But there are factors to consider. Among them — whether current volumes justify local manufacture and whether foreign bicycle brands would succumb to duty-compelled need to localise and transfer patented technology.

Despite visible architecture and mere assembly, a good cycle is the stuff of design, engineering and fabricating skill. The frames of bicycles — their geometry, materials, structure and welding — are critical to a manufacturer's reputation. Foreign brands won't easily share hard-built DNA.

On the other hand, Indian manufacturers have no comparable performance-DNA to advertise to the world. More than tariff protection, they must study, compete and grow. Will they, if import barriers return?

An industry official said that while the duty hike was understandable, the rise was steep (from 10 per cent to 30 per cent for full cycles and 10 per cent to 20 per cent for components).

Four players — Hero, TI Cycles, Atlas and Avon — control 90 per cent of the Indian market. Hero and TI — the big two — import cycles. TI also makes some of its advanced frames in India.

So who is scared of imports? The immediate impact of the Budget could be price rise and potential down-trading of high performance cycle components for low performance ones, to meet product price point. Eventually, sourcing-scale and rising disposable income may offset duty hike. How does all this improve consumer experience?

In Bangalore, one big IT company gives loans to employees to buy cycles because cycling is healthy and environment-friendly.

If the Finance Minister actually did something to encourage it, then it would have added character to that Budget in times of high oil price. Besides, if we increase the breadth and depth of cycle use, don't we address the manufacturing opportunity the Budget sought to create through old-fashioned tariff barrier?

Cyclists would ask — why us, Mr Mukherjee?

(The author is a freelance journalist based in Mumbai.) >[email protected]

Published on March 19, 2012
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