Toyota has an 89% stake in its Indian unit, and this August its market share shrunk to 2.6%, from 5% in the year-ago period. Photo: Handout

The Indian government is trying to position the country as an alternative to China’s manufacturing prowess, but the automotive sector is in a state of ferment as sales have been hit by the ongoing pandemic, and high taxes are adding to its woes.

The latest company to raise the issue is Toyota Kirloskar Motor, the Indian unit of Toyota Motor Corp, the world’s largest carmaker. A company official has said it won’t increase its capacity due to the country’s high tax regime. In India, cars and two-wheelers invite a goods and services tax of 28%. In addition, there are levies ranging from 1% to as much as 22%, based on a car’s type, length or engine size. The tax on a four-meter-long SUV with an engine capacity of more than 1,500cc works out as high as 50%.

As per media reports, Toyota Kirloskar vice chairman Shekar Viswanathan has said the government keeps taxes on cars and motorbikes high so that companies find it hard to build scale. On the other hand, because of the high prices, cars remain beyond the reach of many customers.

Vishwanathan said, “The message we are getting, after we have come here and invested money, is that we don’t want you.” Though the company may not exit India, it will not scale up either, he added.

Toyota has an 89% stake in its Indian unit, and this August its market share shrunk to 2.6%, from 5% in the year-ago period. Toyota sold around 5,555 units this August, down 51% from 11,544 for the corresponding period last year. However, on a sequential basis it was marginally higher – in July it sold 5,386 units.

In 2017, American carmaker General Motors left the Indian market, while Ford is planning to sign a joint venture with Mahindra & Mahindra. Both companies had failed to increase their market share among India’s price-sensitive customers despite operating for more than a decade. Iconic bike maker Harley Davidson is also reportedly working on plans to exit the Indian market due to low sales and a high import duty.

Though experts predict that in the post-Covid world the demand for personal vehicles will go up, as people would shun public transport over virus fears. However, large-scale job losses and pay-cuts, coupled with businesses getting hit by the lockdowns, has made people cut down on discretionary spending. Many are now buying used cars and two-wheelers.

Last month, Finance Minister Nirmala Sitharaman said, “Since two-wheelers are neither a luxury nor a sin product, they merit a rate revision.” Though she had assured the issue would be taken up at the Goods and Services Tax council, no final decision was taken.

India is reportedly planning to offer production-linked incentives to various industries, including automobile manufacturing, to woo companies looking to shift their bases out of China. Earlier it had rolled out a similar incentive scheme for mobile phone handset manufacturers and it had attracted Samsung and Apple Inc.’s contract manufacturers Foxconn, Wistron and Pegatron.