India must re-think plan of becoming global car making hub: Skoda MD

Country has lost the edge due to levies and differential duty structure, says Gurpratap S Boparai

India is no longer an attractive manufacturing centre for export cars. This is largely due to the levies on cars imported from India and the differential duty structure on vehicles, based on their length in the domestic market, said Gurpratap S Boparai, managing director, Skoda Auto Volkswagen India.

He spoke on the sidelines of the Skoda Slavia unveiling on Thursday.  The premium midsize sedan, the second model borne out of the India 2.O strategy, will rival the Honda City, Suzuki Ciaz and Hyundai Verna and go on sale in the first quarter of 2022.

Skoda has ambitions to lead the segment, with monthly sales of 2,500 to 3,000 units. “We have bookings of 20,000 units and have been able to double our sales year on year on the back of Kushaq,” said Zac Hollis--- director, sales and marketing at Skoda Auto India.

Though on a low base, in October 2021, Skoda Auto saw its sales jump to 116 per cent year-on-year to 3065 units up from 1421 in October 2020. It is now gearing up for exports. The volumes however, will depend on the demand and may be limited given the duties levied by the importing countries and other reasons.  

“There aren’t too many markets across the globe that allow cars without duties,” Boparai told Business Standard. On top of that, a differentiated duty structure in the domestic market that favors sub four meter models is yet another limiting factor, he added.      

Prior to 2015, India could export to the EU (European Union) without any duties. But from 2015 onwards, the EU started levying a 10 per cent duty on PVs imported from India. The landed costs over and above the 10 per cent including the logistics, etc. made imports from India, Uncompetitive.  That meant if a company had a plant in the EU it was cheaper to make it there than import from India, explained Boparai  As a result, a lot of global car makers shifted the production base of the models from India to countries including Turkey and Hungary.

“This could change if India has FTAs (free trade agreements) with more countries. This will benefit everyone,” says Boparai.

India levies a duty of 29 per cent (1 per cent cess plus 28 per cent GST) on passenger vehicles less than four meters of length. For cars longer than four meters, the duty is 45 per cent (28 per cent GST plus 17 per cent cess)

The differentiated duty structure on PVs less than four meters has been yet another deterrent, says Boparai. The body type accounts for a tiny 7 per cent in the global car sales. It therefore limits the number of cars one can export to, he pointed out.

“The differential duty structure needs to be phased out so that the bigger cars that have much wider appeal globally can be exported. No one will make in India just to export, but to serve the local markets and also export.  This taxation limits exports,” he said adding “I think we have to re-think how we can be a global hub for manufacturing cars.”

In the first seven months, PV exports from India rose to 324,340 from 195,682 units, according to the Society of Indian Automobile Manufacturers. But this is way off the 401533 units-mark which were shipped in the same period in 2019. According to Kavan Mukhtyar, Partner and Leader - Automotive, PwC, with governments around the world encouraging localization and re-alignment of the trade pacts, exports are no longer attractive. “The pandemic has broken the global supply chain and transport costs have become prohibitively high.”  As a result, exports of PVs from India will remain muted in the foreseeable future.’