Updated on 17th March 2012:
The Indian Union Budget of 2011 has upset the Indian automobile market quite well with the definition change of the CKD (completely knocked down units) to SKD (semi-knocked down units) which was later clarified by the Govt. of India. The change of definition brought a wave of unrest among the automakers who import their car components in India as partially assembled units like engines and transmission units. The definition change resulted in a rise of about 6 folds in the duty from 10% to 60%. After the clarification though, the worries of the automakers lessened, but the recent developments seem to be again disturbing for the car and bike manufacturers. The impact hits mostly the International brands which get their engines, transmissions and other vital components into India and assemble and sell them in India.
As per the latest information, the duty on CKD kits have been increased 3 folds to 30% from the previous rate of 10%. Engine and transmission are the two exceptional components which will still attract only 10% of the duty, rest all the CKD units will attract 3 times the duty. In simple language, it means that the luxury cars or cars with imported CKD units or kits installed with see a sharp price increase in India. The car companies may absorb some part of this additional duties, but major part will be passed on to the consumers.
This step is intended to promote local manufacturing of the components in India by the international brands which may give a boost to Indian economy. But such abrupt and sharp rises in duties may upset the long term strategies of International auto makers, which in some cases my repel them more compared to attracting them to set up local plants for everything in India. This step is most likely to impact the rapid growth of Indian automobile industry in an adverse way at least for the short term growth perspective.