Nonsensical Indian bureaucracy

India’s Auto industry managed very little growth last year, and now the government seems to be kicking it while it’s still down. There seems to be something seriously wrong with the bureaucracy of regulation, or is it just simply the silliness of our politicians?

There is a trending shift that cannot be denied in the auto industry and the numbers speaks for themselves. In the last financial year dated from April 2012 to March 2013, the number of total passenger vehicles sold were 26,86,429, and in the financial year before that i.e., 2011-12 this number was almost identical to this year at 26,29,839 units sold. Now, that is not a decrease as most newspapers have been suggesting, it is in fact a growth – a very small one at that – of 2.15%.

Growth has always been a determining factor of the success of an industry, but I am also sure some people will be delighted to know that there will not be a significant increase of vehicles on our streets, since we already face hideous traffic. Putting that aside, then why is the industry, and media, exaggerating the issue, that car sales dipped to its lowest point in 12 years? The fact of the matter is that car sales have indeed suffered a blow, but not all vehicles. Passenger cars include hatchbacks and sedans, including luxury sedans. The overall sale of these passenger cars has decreased by almost 6.69%, and that is very much the lowest it has been in 12 years. On the other hand, SUVs, MUVs and other Utility vehicles, which are not really classified as cars, grew by more than 52%. That is a significant increase and it does raise a few questions. Also interestingly enough, it was in fact low-cost manufacturers such as General Motors, Ford, Fiat, Hyundai, Maruti Suzuki and Tata Motors, that showed the lowest growth figures. Even luxury cars or premium cars such as Skoda, Mercedes, Volkswagen and BMW also suffered major blows to their passenger vehicle sales.

There has obviously been a major shift in the type of vehicles in demand these days and it seems the answer to all our questions is the crossover vehicle. The Renault Duster was launched just last year and it is probably the only crossover vehicle in India at the moment. A crossover is simply a cross between a sedan and a SUV – it drives like a sedan but looks like an SUV and can behave like one. Renault sales grew by a staggering 1,331% after the launch of the Duster. Mahindra & Mahindra, which only manufactures SUVs also, had strong growth of 26%. And while Maruti Suzuki suffered in passenger car sales with only a 4% increase, they had major success with their utility vehicle called the Ertiga. In the 2011-12 period Maruti Suzuki managed to sell just 6,525 utility vehicles, but in 2012-13 they sold a whopping 79,192 utility vehicles. The trend is apparent in luxury vehicles as well, and while most luxury sedan sales declined, the sale of luxury SUVs increased.

This trend is happening for many reasons. Besides the soaring fuel prices, the unstable economy and the ridiculous policies of the government, the Indian customer now seems to be more knowledgeable, and for obvious reasons prefers a crossover vehicle or utility vehicle for its practicality on Indian roads. They come with more comfort and better ground clearance, and this is ideal considering our treacherous roads and horrid infrastructure. There are now more urban families with better incomes and they need more comfort and convenience in their cars and so they opt for SUVs or MUVs. These new crossover and utility vehicles such as the Duster and the Ertiga also do not come with big capacity engines; in fact, they are fitted with low capacity and very fuel efficient engines. So essentially they remove all the negative aspects of a full size SUV. Even luxury SUVs make for a better option over luxury sedans, which can get badly damaged on even the smallest speed breaker.

However, our government doesn’t seem to get this. What the auto industry needed and was hoping for was a stepping stone to assist them in recovering from a tough economy, instead the industry was treated like a step child. Once again the luxury car manufacturers, which is only made up of foreign players will need to rethink their strategies as the import duty on full imports has been increased to 100%. How does that help anyone? Oh that’s right! More money for the government! The government claims these high duties will protect local car makers, but can you name even one Indian luxury car maker. Who are they really trying to protect?

What’s more frustrating is that SUVs and even MUVs will have their excise duty increased to 30%. Even motorcycles with an engine capacity over 800cc have gotten the short end of the stick. Nothing good can come from this, and all these increases in tax will only be moved down from the manufacturer to the consumer. These increases in taxes on SUVs and MUVs do not apply on vehicles smaller than 4 metres, so the Ford EcoSport will be spared when it is launched later this year.

But these restrictions and regulations do not make any sense, especially since the finance minister wants to impose them on gas guzzlers, but then why did the minister not extend any subsidies on electric cars. This completely negates the imposing increase of tax and duties – something which is very shortsighted. And as a matter of fact, these new crossover vehicles such as the Ertiga and the Duster are not gas guzzlers. They use very efficient engines that create lesser emissions and they are also smaller than full size UVs, so they take up lesser space on the roads.

The promise of better infrastructure has been coming for more than a decade now, and with nothing to show we all know this promise is one that will not be achieved in our lifetime. So while the auto industry tries to crawl out of a slumber and the Indian consumer gets more accustomed to the new age of automobiles, we can only hope and pray that the Indian bureaucracy and our political masters will not hold it back.