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It's a divided house on hybrids in Indian automotive industry

Prior to GST, hybrid vehicles were taxed at 30.3 per cent (12.5 per cent excise duty, 12.5 per cent value-added tax, 2 per cent central sales tax and 1 per cent national calamity contingent duty). Under GST, it attracts 28 per cent tax and 15 per cent cess - like big petrol and diesel luxury cars

Sumant Banerji        Last Updated: September 6, 2019  | 00:36 IST
It's a divided house on hybrids in Indian automotive industry

Minister of Road Transport, Shipping and MSME, Nitin Gadkari on Thursday said the government is thinking of extending the same GST rate currently offered in electric vehicles to hybrid vehicles as well, setting the cat among the pigeons in the domestic automobile industry.

"We have already reduced the GST on electric vehicles and now I am trying to make sure that the hybrid cars too get a similar reduction," he said. "I am following up with the Finance Ministry, so should the manufacturers, so that it too can be covered under the same bracket."

Prior to GST, hybrid vehicles were taxed at 30.3 per cent (12.5 per cent excise duty, 12.5 per cent value-added tax, 2 per cent central sales tax and 1 per cent national calamity contingent duty). Under GST, it attracts 28 per cent tax and 15 per cent cess - like big petrol and diesel luxury cars.  In July this year, the GST Council reduced the tax rate on electric vehicles (EVs) to 5 per cent from 12 per cent increasing the gulf in taxation between hybrid and pure electric vehicles in the country.

This also marks a clear departure from the government's earlier stand where it was dismissive of hybrids as an intermediate technology towards electric mobility and wanted the industry to make leapfrog from internal combustion engines to electric vehicles directly. 

Gadkari's statement has, however, divided the industry down the middle with Japanese manufacturers such as Maruti Suzuki, Toyota Motor Corporation and Honda welcoming such a move while homegrown companies such as Tata Motors and Mahindra and Mahindra not showing as much enthusiasm with it.

"This will be a welcome step. Any new technology that improves the efficiency of a vehicle on mileage or emissions need to be encouraged and a reduction in taxation on hybrid vehicles would be a step in the right direction," said C V Raman, senior executive director (engineering), Maruti Suzuki India Ltd.

Rajesh Goel, senior vice president and director, Honda Cars India said, "The support shown to the advanced hybrid technology the transport minister is very encouraging as we firmly believe that Hybrid is the right technology for sustainable transition to EV."

Tata and Mahindra, the two companies that are eager to get the first mover advantage on EVs and have an electric car each in the market - eVerito and eTigor, respectively - were less enthused.

"If somebody says that going for electric powertrain is a two-step process via hybrids, then that is not right," said Pawan Goenka, managing director, Mahindra and Mahindra. "I am not critical or supportive of this statement. I am neutral to it."

Tata Motors CEO and MD Guenter Butschek was even more caustic.

"We all know it. As far as the car industry is concerned, the growth story is about to collapse," he said. "As an industry we need to have one voice on technology play. We need to invest in new technology. After BS VI (emission norms) we have to prepare for CAFE norms. Now government is rethinking on hybrids. How many of these disruptions can be absorbed when volumes are low?"

Butschek had in the past as well voiced his concerns about any government rethink on hybrids due to intense lobbying from Japanese carmakers.

"There will be a huge degree of confusion in the larger industry, including the private sector which is finalising investments. There are so many companies ready to set-up charging stations and even battery manufacturing factories. Now with hybrids, there is no need for those investments," he had said in March.

The divided house has left SIAM, the umbrella industry body, undecided as well.

"We have to consult our members before we can take a call on this," said Rajan Wadhera, president, SIAM. Wadhera is also President (automotive sector) at Mahindra. 

A googly from the government has once again tied up the industry in knots.

Also read: Slowdown Blues: Nitin Gadkari does a U-turn, says no ban on petrol, diesel cars

Also read: Slowdown Blues: Carmakers ask govt to cut GST rates on automobile before festival season

Also read: Slowdown Blues: Maruti Suzuki to shut down Gurugram, Manesar plants for 2 days

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