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Carmakers say policy U-turns putting India plans out of gear

LiveMint logoLiveMint 14-08-2017 Shally Seth Mohile

Mumbai: Frequent changes in policy and tax structure have irked global auto industry majors, prompting some to review their India plans even as others wait to see if there are more changes before doing so.

The flip-flops, the most recent one being a proposed increase in cess on large cars and sport utility vehicles (SUVs) by up to 10 percentage points, will have both short- and long-term implications, say analysts.

In the long term, it will affect investments by large multinationals in a market that is poised to be the third largest in the world by 2020.

In an interview soon after news of the proposed cess broke, Mercedes-Benz India chief executive officer (CEO) Roland Folger said his company’s planned investments were “on the back burner”.

In the short term, it will cause major disruptions for auto firms as they brace for yet another round of price changes.

The GST Council plans to hike the cess on large cars and SUVs from 15% to as much as 25%.

When the cess is raised, the prices of some top luxury cars will go up by between Rs72,000 and Rs2.58 lakh. The Council is yet to notify the exact quantum of the increase and other specifications.

The hike in cess is just one among the slew of other surprises that have miffed heads of auto firms. There have been several more—including a higher rate on environmentally friendly hybrid cars, an eight-month ban on large diesel vehicles by the Supreme Court in 2015 and the advancement of the deadline for Bharat Stage VI emission norms to 2020 from 2022. 

Andreas Lauermann, president and managing director Volkswagen India Pvt. Ltd, said the local arm of the German carmaker is confident of the growth potential the Indian market offers and has a long-term commitment but “it needs a stable and reliable framework to operate in.”

Volkswagen AG is currently working on details of how it wants to proceed “in this challenging market and in these challenging years”, Lauermann added. The VW board will consider a proposal in September to introduce a new platform in India to substantially boost the German company’s portfolio of cars, Mint reported on 14 August.

Lauermann blames changing policies and frameworks for its inability to get its long-term strategy right. In 2014, VW invested in a unit for local assembly of diesel engines since the demand for diesel cars was high. But by the time it was ready, “diesel came under pressure due to court activism”, said Lauermann.

The move to levy higher taxes on premium models can alienate India as a market and make companies think twice before launching advanced global models here at a time when the industry is moving towards globalization in emission norms and safety standards, said Yoichiro Ueno, president and chief executive at Honda Cars India Ltd.

Jnaneswar Sen, senior vice-president, sales and marketing at Honda, said, the firm will have to “get back to the drawing board” for future products and technologies.

While frequent policy and rule changes are an irritant for all firms, it’s a bigger one for large companies with a global presence, said Rajeev Pratap Singh, partner at Deloitte Touche Tohmtasu India Pvt. Ltd.

“It becomes difficult for local CEOs to get back to their leadership and stitch together the India story,” said Singh.

Faced with uncertainty, many parent companies would have no choice but to hit “the pause button”, he added.

”They (the government) shouldn't be under the false impression that companies will come and invest because India is in a sweet spot,” said Shekar Viswanathan, vice-chairman at Toyota Kirloskar Motor Pvt. Ltd, adding companies will invest if only they get a “conducive environment and a stable tax structure”.

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