In what may be a costly error in this year's Union budget, a so far seemingly unintentional change in the definition of Complete Knocked Down (CKD) unit or vehicles -- where parts are imported and then assembled -- promises to disrupt production of cars in the country, throwing the industry in disarray.
The new definition in the budget disallows manufacturers a concessional 10% import duty for cars and mobikes where either the engine, gearbox, transmission or chasis come in as a pre assembly form. Effectively, this would increase import duty on cars as varied as a Hyundai i20 diesel, Toyota Innova to a top of the line BMW 5 series, to 60%, making them way more expensive.
While car manufacturers went into a shell, apex industry body Society of Indian Automobile Manufacturers (SIAM) said it would seek a clarification from the government.
"It appears very restrictive and all CKD cars in the country would get badly impacted," said a senior SIAM official after a hurriedly convened executive committee meeting in the evening. "To us, it seems to be an error leading to misinterpretation. But if this is deliberate, then everybody would have to change their production plan causing a disruption that may carry on for months."
The worst affected could be the big three of the luxury car segment, BMW, Audi and Mercedes, who either import Complete Built Units (CBU) or produce cars under the CKD route. The three firms witnessed stratospheric growth in sales of upto 70% in 2010, as they expanded their product range and started assembling more cars in India.
With confusion all around and no clarifications in the offing, Mercedes and Audi refused to comment while BMW said it would wait for further clarifications. Meanwhile, the fate of their cars like the BMW 3 and 5 series, Mercedes C and E Class and Audi A4 and A6, besides many others, hangs in balance.