High regulatory burden, taxes keep cars out of reach of Indians: Automaker

The levies by the Indian govt have made purchasing vehicles expensive for the population, said RC Bhargava, Maruti Suzuki's chairman

The Car-industry in India is suffering from massive setbacks with its growth slowing down to 3 per cent from 12 per cent in the past twelve years, Bloomberg reported quoting RC Bhargava, Maruti Suzuki's chairman. The levies by the Indian govt have made purchasing vehicles expensive for the population, he said on Monday.

“Government policies are such that they treat cars as luxury products that need to be heavily taxed,” Bhargava said at an event in New Delhi. He further emphasised that “Car affordability is not at all related to income.” 

According to IndianFiling, Maruti’s cheapest car costs Rs 3.40 lakh and a goods and services tax (GST) of 28 per cent applies to most new cars. The additional cess ranges from 1 per cent to 22 per cent depending on the type of vehicle. The cars that are imported as completely built units (CBU) attract customs duty ranging between 60-100 per cent, depending on their engine size and cost, insurance and freight (CIF) value being less or above $40,000.

Highlighting the regulatory burden, Bhargava said that small cars are the most impacted. Small cars also make for a  key segment of the Indian automobile industry. And this regulatory burden and a uniform tax structure across all segments of vehicles will prove critical for the Indian automobile industry. 

"The burden of regulatory changes on the small cars is far higher than the regulatory burden on big cars and that is changing the whole market behaviour. People who are buying small cars are not buying small cars in near the same numbers. Personally, I think it's not a good thing, either for the car industry or the country," Bhargava said.

A healthy growth of the automobile industry is driven by a steady increase in the number of new customers. The base number of ownership of cars must keep increasing every year, he asserted.

"I don't see that as becoming an inverted pyramid and the car industry becomes an industry where in India there is hardly any growth in the small segment and all the growth takes place in the higher segments. So, that factor has to be kept in mind, the regulatory effect on the car, and that's one argument for not having a uniform rate of tax on all small and big cars," Bhargava said.

Bhargava emphasised that the automobile industry cannot grow with 50 per cent taxation. "Where in the world has an industry like automobiles grown with 50 per cent taxation, but it's the wisdom of the policymakers and the political leadership," he added.

Comparing the per capita income in markets like Europe and Japan he made a strong case for unburdening the Indian automobile industry from excessive taxes. Compared to developed markets like Europe and Japan, where per capita income is far higher, taxes on cars in India are much higher, he said.

At present, only 7.5 per cent of Indian households own a car. According to the World Bank data India’s per capita income is about $2,300 a year, as against $12,500 in China and $69,000 in the US

"Now, somebody needs to think about that, should cars be charged more than the average rate of taxation...? If it is, then we are, in some way, accepting the thing that cars or luxury products should be taxed more than non-luxury products, which is the old socialist way of thinking and taxation," Bhargava said.

Earlier, car makers like Tesla Inc and Toyota Motor Corp have made similar criticism as Bhargava. in 2019, Musk had said that it was India's duties that prevented Tesla from importing electric cars o test demand before committing to build a local factory.