Luxury car market’s dream of double growth may hit a roadblock. Here’s why

The Indian government is planning to increase the cess on large vehicles and if implemented, it may hurt the luxury car market.

The luxury car market, which was upbeat about lower GST rate on large vehicles, may see a steep fall in sales if the cess is increased.

The demand was increasing due to lower GST on luxury cars but the decision of the GST Council to increase the cess from 15% to 25% will take the total tax incidence to 53%, hurting the segment’s dream of double digit growth.

Rahil Ansari, director for the Audi brand in India, told ET the company had budgeted for double-digit growth, but now it may be the opposite.

"I am not sure what the main factors behind the change in rates are ... If the cess were to go up by 10%, then we expect a double digit decline in sales, probably around 20%," said Ansari.

Mercedes-Benz, Audi and BMW had forecast double-digit growth, post GST but higher cess has thrown a spanner in their plans.

"We were looking at expanding our dealership, we were looking at local manufacturing of more products, because market was looking healthy and double-digit growth will spur us to get more products and have a positive business case. But now we are going back to the drawing board and questioning the business case. Now we cannot expand dealership, cannot hire more people," India head of Jaguar Land Rover, Rohit Suri, ET.