During her speech revealing the details of the 2021 Budget, Finance Minister Nirmala Sitharaman made several announcements that relate to the automobile industry directly or indirectly. Two of the major announcements included the introduction of a new voluntary vehicle scrapping policy and revision of customs duty on certain auto components. While the vehicle scrapping policy has been lauded by the industry in one voice, underlining that it would promote vehicles that are safer and have cleaner emissions or are electric, the hike in customs duty could end up affecting the prices for the end consumer.
The imported auto parts in question include non-critical components that are also manufactured in India. The government is increasing the customs duty on these with the intention of pushing local manufacturing. These parts so far invited a 7.5-10 percent duty but now it has been increased to a uniform 15 percent with effect from 2nd February.
These parts include toughed safety glass, bulletproof glass, safety glass (consumables), glass (interiors), turbochargers, parts for lighting, signalling equipment, windscreen wipers, defrosters and demisters, ignition wiring sets, frames and forks, hub brakes, pedals and crank-gear, and other vehicle parts.
An increase in customs duty on these imported parts could lead to some increase in prices as the input costs would rise. The move is most likely to affect CKD (completely knocked down) vehicles that are assembled in India.
Ashish Gupta, Brand Director, Volkswagen Passenger Cars
“With respect to the auto sector, increase in custom duty on certain auto parts would impact the input cost, although we’re yet to assess the financial impact. On the voluntary scrappage policy, strict governance on the fitness test would determine the benefit on the environment and pollution reduction.”
Martin Schwenk, Managing Director and CEO, Mercedes-Benz India.
“The increase in the rise in auto component duties is unexpected in such revival period, and it will increase the production cost, leading to higher cost for consumers. There could have been further push towards e-mobility by lowering import duties on EV.”
