Budget 2018 impact: Locally assembled bikes to become dearer

The two-wheeler industry was waiting with bated breath when the 2018 Union Budget was being presented by our Finance Minister, Arun Jaitley. While manufacturers were looking forward to some kind of relief from the already sky-high duties, it turned out to be the completely opposite. Duty on CKD for two-wheelers has risen from the existing 10 percent to 15 percent. Since getting a motorcycle to India via the CBU (completely built up) route attracted a very high custom duty, bike makers switched to CKD (completely knocked down) units. CKD attracted lower duties, which meant retail prices were considerably lower and two-wheeler manufacturers started investing in CKD facilities. International brands like Triumph Motorcycles, Harley-Davidson, Honda, Suzuki, Kawasaki, Benelli and Hyosung have been utilising the CKD route for the past few years for some of their offerings in India. The hike of 5 percent will see the prices of two-wheelers from these brands increase, depending on their retail price.

We contacted company officials of these brands and they haven’t been able to gauge the actual impact on prices for their offerings and are working on it. However, they did confirm that the hike in duty will increase the prices, which, in turn, will be passed on to the customers. According to Vimal Sumbly, MD of Triumph Motorcycles India, prices for their two-wheelers will see a hike between Rs 30,000 to Rs 1 lakh, depending on the model. The reasoning given by Arun Jaitley for the increase in tax was to encourage manufacturers to build their offerings in India under the PM’s “Make in India” Initiative.

While the Finance Minister’s vision is correct, as local manufacturing will create more employment and will also bring down the prices, it should be brought to notice that the market for performance motorcycles in India is still in its nascent stage. This means that bike makers wouldn’t be able to justify the high investment required for setting up a production plant unless they witness a significant rise in demand. This wouldn’t happen in a short time period. So if you were planning to save up and buy your dream motorcycle – well, that dream just got dearer.

“The increase in customs duty on CKD and auto parts does come as a surprise. We are disappointed in light of already high GST rates applicable in this segment. We will be working with our tax consultants to study the granular details and understand the precise impact of this on our imports. We have always tried to keep motorcycles as accessible as possible, but such tariffs do pose a challenge.” Peter Mackenzie, Managing Director, Harley-Davidson India & China.