The Indian government has hiked import duty on completely knocked down (CKD) kits imported into India, from 10 % to 15 %. Car and motorcycle makers in India import cars and motorcycles through the CKD route and assemble them in India as the overall import duty for CKD assembly is much lower than that for import through the completely built unit (CBU) route. What the latest hike in import duty has done is, it has made building a car/motorcycle in Thailand – a country with whom India shares a Free Trade Agreement – cheaper than assembling it in India through the CKD route.
The MD of Triumph India, Vimal Sumbly, said this,
If the government keeps penalising this local assembly, most luxury automobile firms, including us, will have to rethink this India strategy. An additional 5 per cent duty translates into an outgo of about Rs 150 million to Rs 200 million on a turnover of Rs 2 billion to Rs 3 billion. It is a huge burden. The move is against the spirit of Make in India. Why invest in local assembly, manpower, homologation, and other overheads if we can simply get bikes from Thailand? While the hike may have only a short-term impact on demand, it weakens the company’s case before the board when pitching for additional investment and launching new models.
Following the hike in import duty, Triumph passed on the hike to customers by increasing the prices of its CKD motorcycles. Earlier this year, Triumph decided to CKD assemble 90 % of the motorcycles it sells in India, and the latest move of the government could make the British motorcycle maker rethink its CKD assembly plans.
If Triumph chooses to use the Thailand FTA route to import motorcycles, CKD operations that the company runs at Manesar in Haryana could be impacted, resulting in job losses. While the company has not gone to the extreme extent yet, the import duty hike on CKD vehicles is something that a lot of premium motorcycle and car makers are unhappy about.
In future, India could lose out on investment due to the hike. Thailand is a country that could gain at India’s expense as car and motorcycle makers may directly import vehicles from that country rather than CKD assembling it here.