luxury car business in India needs to be nurtured and allowed to grow in a relaxed taxation environment to raise overall standards, exceed customer expectations, bring increased revenues, augment employment generation, contribute to the GDP and bring environment friendly, world-class technologies
The Indian automotive industry requires a clearly mapped, bump-free route for it to be a true nation builder. The automotive industry is acknowledged world-wide as the pulse of a nation’s economy. It’s no different for India: The importance of a robust auto industry to an emerging nation cannot be overstated. Currently, the automotive industry in India contributes a not-insignificant 7.1 per cent to the country’s gross domestic product and has the potential to grow further. In fact, the Indian automotive industry is already poised to become the third largest in the world by 2020.
However, this positivity has to be matched by policies that help the industry and the Government drive together towards a more prosperous future for the nation and its people. The Government of India’s various and the most remarkable initiatives have always been matched by the automotive industry’s hearty support for them. Make in India, Skill India, a strong infrastructural push and demonetisation are all substantial measures that have had the net effect of propelling India forward for a more prosperous tomorrow. The industry has expressed its support for these initiatives in no short measure.
Among these initiatives, the Indian auto industry had whole-heartedly accepted the implementation of the Goods & Services Tax (GST) and there was a universal acclaim for this move as it makes India a single market. Specifically for automobiles, it promised rationalised purchase prices across the country and in fact, Mercedes-Benz, India, was the first to pass on the benefits to our customers, even before the formal introduction of the GST.
The promise of revised prices in the GST regime would have translated to a substantial uptick in sales in cars and SUVs and created a strong, positive sentiment in the automotive market. However, in just a month since GST was implemented, there was a sudden dampener to this prospect of unfettered growth: A proposal to increase the cess over and above the GST from 15 to 25 per cent. This, clubbed with an increase in road tax rates in some States, would effectively take the price of luxury cars and SUVs well above the pre-GST levels.
This is a fundamental and unexpected change in the tax regime that significantly affects the strategy that a company like Mercedes-Benz, India, has laid out for our growth plan in the country. The proposed increase in cess is but one of the several policy changes that has constructed speed-breakers on what could have essentially been a smooth road.
A ban on diesel vehicles over 2000cc, additional taxes on luxury vehicles in the Union Budget, an additional one per cent environment compensation charge on diesel vehicles over 2000cc in Delhi, National Capital Region, an increased GST rate on hybrid vehicles are some more examples of indiscriminate shifts in policy.
The effect these unexpected policy changes have on the workings of companies is that instead of driving confidently towards the overall growth, they are forced to scramble towards short-term measures that are devised only to mitigate the current circumstances and nothing else.
Sudden policy changes have many other serious ramifications too — they curtail expansion plans that would otherwise have led to job creation and create a multiplier effect that transcends geographies and aids economic growth. These curtail the potential revenue generation that could have come with the estimated volume growth and restrictcompany managements from making any carefully crafted long-term plans for India. It has the potential to even affect the Government’s ‘Make in India’ programme.
Any major policy change needs time to take effect. And the efficacy and intended objective of this new policy would need to be measured after giving it sufficient time and course corrections implemented accordingly. We haven’t given enough time to chart the course set out by the implementation of GST to consider levying an increase in cess.
Perhaps, the thinking is that luxury cars and SUVs, like other sin goods, are for the indulgence of a miniscule percentage of Indians. We need to change this mentality and realise that the state-of-the-art SUVs and luxury cars are demonstrators of thoughtful innovation, extensive research and development and proven technology.
When it comes to essential parametres like safety, performance, fuel efficiency, comfort, emissions and driving pleasure, these automobiles are at the very top of the automotive ecosystem. They also inspire and drive mass car brands to improve their product offerings and, thus, take up the overall standards of automobiles.
With the increase in cess, these vehicles essentially will continue to remain inaccessible to a larger customer base, keeping them away from a superior technology they could have owned. When seen from this perspective, it becomes clear that luxury cars are not just an indulgence for a few, but play a vital role in the overall automotive ecosystem and touch more lives than its intended real users.
In my opinion, the luxury car business is not only for high-end users but also touches the society at every stage, giving it an opportunity to refine and lift itself up. The luxury car business in India needs to be nurtured and allowed to grow in a relaxed taxation environment to raise overall standards, exceed customer expectations, bring in increased revenues, augment employment generation, contribute to the GDP and bring in safer, environment friendly and world-class technologies at a quicker pace.
By charting the growth course of the luxury car industry we provide the much-needed opportunity to our younger generation to appreciate the finer things in life. It’s only enlightened and consistent Government policies that can make that happen. And our wait continues.
(The writer is Managing Director and Chief Executive Officer, Mercedes Benz, India)