Budget 2011 fine print: imported engines to cost more, even small cars may become expensive

In reports emerging after experts read the fine print of the Union Budget 2011, seems like the industry is in for a shock. According to a statement in the Union Budget 2011, engines, gearboxes and chassis, which were imported into the country as CKDs or completely knocked down units, attracting a duty of around 10% will now be considered SKDs or semi knocked down units, which attract a hefty duty of more than 60%. From the first reports, it seems that government is planning to bring completely assembled engines and other such components will be excluded from the list of CKDs which attract reduced duties.

Now this is shocking, because if the new duty structure takes effect, not only premium cars, but mainstream cars also will become substantially expensive. Some companies are still importing the engines and transmissions for even their small cars. For e.g. the engine of the Toyota Etios is imported from Japan, and the government levies a 10% duty on it considering it a CKD unit. If the component is shifted into SKD units, the duty will shoot up to more than 60% and the car will lose its price advantage.

The industry is still awaiting s clarification from SIAM and the government. We smell lobbying of the local car industry to protect their interested behind the new duty structure. What do you think, would it be prudent on government’s part to alter the duty structure when the industry is flourishing, to protect the local industry. And will the ploy really protect or destroy the industry in India? Do let us know your opinion.