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Car Cos Relieved After Crossing Cess Bump

Car Cos Relieved After Crossing Cess Bump
But luxury automakers, which will be impacted the most, criticise new rates

India’s popular and compact-car companies sounded relieved after the GST Council on Saturday raised the vehicle cess by less than the maximum possible, although luxury automakers were more circumspect in their assessment of the new rates.

After the increase, Honda City and Hyundai Verna should be costlier by about .? 20,000. Mid-market SUVs such as the Creta and Duster will likely see their prices rise by as much as .? 90,000. The increases are expected to be higher in the C and D segments. The Jeep Compass, Mahindra XUV, Tata Hexa and Toyota Innova will likely be costlier by as much as .? 1.2 lakh. Bigger SUVs such as the Toyota Fortuner, Ford Endeavour, Audi Q3 and BMW X1 will be pricier by up to .? 2 lakh while Luxury SUVs such as the Audi Q7 may cost up to .? 4 lakh more. The revised rates mean a partial reversal of the price benefits buyers initially enjoyed in the immediate aftermath of the GST’s July 1 introduction. Still, the total tax incidence on vehicles in the midsized, large and SUV categories will be lower by 1.6%, 3.8% and 5.3%, respectively, compared to pre-GST levies. But luxury carmakers such as Audi, Mercedes-Benz and BMW will be more affected by the increase in the cess, as these companies had benefitted the most from the initial decline in total levies.

“As far as Maruti Suzuki is concerned, there is no change. And a two percentage point increase in cess on midsized cars is neither here nor there, and would not make a difference… The market was absorbing the same prices two months ago,” Maruti Suzuki chairman RC Bhargava said.

“The question is, how quickly can he get the whole country with him. But the essence of what you are trying to do with some of the big initiatives is right and to the benefit of Indian economy. We are supportive of many of these initiatives because if it’s beneficial to India, it will be beneficial to HUL as well,” he said. HUL contributes about 9%, or 4.5 billion, to the Anglo-Dutch company’s overall sales versus the US that accounts for15%, or about 7.5 billion.

“I am not giving guidance but the assumption we double (in India) in the next 10 years or seveneight years is a no-brainer. Because US is not going to double,” Polman said. “India as an economy is going to do better than other parts of the world. If we fail, then we would be the first one to be very disappointed.” The optimism from Polman, who has been credited with turning around Unilever after taking over in 2009, comes against a backdrop of slowing consumer demand in India in the last two years. The company, regarded as a proxy for consumer sentiment in the country, saw sales rise 4% with an underlying volume increase of 1% last fiscal.

Polman, 61, was disappointed to miss the just-concluded Ganesh Chaturthi festival but will be carrying back figurines of the god of new beginnings and remover of obstacles back home to London. Demonetisation late in 2016 and the rollout of GST in July were regarded by some as obstacles to growth. “Demonetisation… was a big challenge to implement but from a strategic, long-term point of view, it is the right thing to do in India,” Polman said.

“In terms of GST, we had been working in a planned way for long for this smooth transition. We have certainly seen that translate into share increases among a big part of the business.” He said the first invoice under GST was issued by HUL. Unilever has been focusing more heavily on cutting costs, improving profit margins and boosting shareholder returns after the bid. This had resulted in the group’s share price rising 35%. The Indian arm mirrored the trend — at $40.8 billion, HUL accounts for a quarter of Unilever's market cap and saw its shares surge to record last week.

The Economic Times, New Delhi, 11th Septembr 2017

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