US President Donald Trump’s remarks about “unfair” trade practices and the call for “reciprocal taxes” from the US, have had muted reaction from two-wheeler manufacturers in India. The US President’s remarks came after the Indian government announced a cut in import duty on fully imported motorcycles, from 75 per cent to 50 per cent. The US President said it was not enough and asked that it should be reciprocal, as the US doesn’t impose any tax on the import of motorcycles, even if they are from India.
“If you are Harley-Davidson, you have 50 to 75 per cent tax, tariff to get your motorcycle, your product in. And yet they sell thousands and thousands of motorcycles, which a lot of people don’t know, from India into the United States. You know what our tax is? Nothing.”
“So I say we should have reciprocal taxes for a case like that. I’m not blaming India. I think it’s great that they can get away with it. I don’t know why people allowed them to get away with it. But there’s an example that’s very unfair. And I think we should have a reciprocal tax,” the US President said.
Imported motorcycles are set to become less expensive in India with the cut in import duty. But only a handful of brands market fully imported or completely built unit (CBU) motorcycles in India. The volumes of premium motorcycles, comprising around 80 per cent of total premium motorcycle sales, come either from motorcycles which are locally assembled from completely knocked down (CKD) kits, or are imported after being manufactured in countries like Thailand. India has a free trade agreement (FTA) with Thailand under which duties are comparable to CKD duties.
In this specific case, Harley-Davidson only has a few fully imported models which are sold in India. Harley-Davidson’s largest selling Street 750 and Street Rod models are made in India, and the rest of the Softail range are assembled in India. Only the Touring range models, and the CVO Limited, with prices ranging above ₹ 30 lakh, are full imports. And these models make only a fraction of overall Harley-Davidson sales in India. Of course, duties on CKD components have been raised, but they are still less than the duties on full imports.
So, what happens now if the US government does decide to slap reciprocal taxes? Will it hurt the Indian two-wheeler industry? Traditionally, the US is not an important export market for Indian two-wheeler manufacturers. Most of the big exporters like Bajaj Auto, TVS Motor Company and Hero MotoCorp have their primary export markets elsewhere, in emerging economies like Latin America, Africa, and parts of South East Asia. These are motorcycles which are mass market models and are more suited to developing nations in these geographies. As for the US, only a few niche Indian players export to that country.
Among the Indian manufacturers, Royal Enfield has some presence in the US, but the brand is still trying to find its feet in the American market and only account for a few hundred unit sales. When contacted, Royal Enfield refused to comment on the issue. The other made in India motorcycles sold in the US are the KTM 390 Duke and RC 390 bikes, but these are not exported directly from India. In fact, the KTM bikes are first exported to Austria, and then further exported to the US, so technically sales of KTM bikes in the US do not fall under the direct purview of KTM India. KTM India has also refused to comment on the issue.
The US President may be correct in saying that the US does not have any import duty on motorcycles sold in the US. But the fact is that, manufacturers, even traditional American brands like Harley-Davidson and Indian Motorcycle, can do little to ignore the booming motorcycle market that is India. Last year, India overtook China to become the world’s largest motorcycle market, selling close to 18 million two-wheelers in one year. And these volumes may be primarily from commuter motorcycles, but high-end bikes are witnessing a lot of growth as well, posting double digits segment growth every year for the past 2-3 years. It’s a reality foreign brands like Harley-Davidson and Triumph are only too aware of, and in a scenario where most brands have only started establishing themselves in India, it’s too soon to get caught in a quagmire with the administration over policy when business is booming in the world’s largest motorcycle market.