Indian Bike Market is at an Inflection Point

Last time the Indian two-wheeler market took a step towards maturity was when Hero Honda introduced the 150cc CBZ. That's when we graduated from being a commuter bike market to a sporty-commuter one.This was a bike which every college-going kid and his dad lusted after. The CBZ sparked the growth of a 150+cc segment and the rest, as they say, is history.

If there was anything that the 2012 Auto Expo showed us, it was that our two-wheeler market is taking another step towards maturity. And the global bike majors can't wait to get a piece of the action.

Global bike majors have come to realise that China, India and other South-East Asian markets have a huge population riding underpowered bikes. And even if a few of them decide to upgrade to higher-capacity bikes, it represents a massive swell of potential customers. They want to establish themselves early to be able to catch the rising tide.

Ducati already has a factory in Thailand (taking advantage of the India-ASEAN FTA), while Harley Davidson has set up their production facility here. Probably, the recent Thai floods prompted Triumph to choose India as their manufacturing base. Bajaj already assembles some KTM and Kawasaki bikes here while the other Japanese majors already have manufacturing facilities here for their smaller bikes. Most of these facilities are built with the intention of exporting the bikes to other Asian markets.

Bikes assembled here (and the ones imported from ASEAN) get to avoid our horrendous +100% CBU import duty. This means we get (relatively) cheaper high-powered bikes. Also, local manufacturing would mean cheaper and better availability of spares. By the end of 2012, we will have more than 5 bikes competing in the 600cc class alone! 

Also, don't be surprised when bike majors start announcing cheaper Asian-spec bikes in the 300-600cc range. KTM has already confirmed that they are working on one while Ducati and Triumph are rumoured to be doing the same.

The single thing that would lead to the creation of the high-powered bike segment is lust. To give you an example, a few years back whenever a college kid saw the newly launched CBZ on the road he promised himself that he would buy one with his first salary. The more CBZs on the road, the more people wanted it. Till finally it became a segment in itself. Similarly, the sights of Ducati Monsters, KTM Dukes and Triumph Speed Triples on our roads will simply entice the fence-sitters to save up and get them some day. 5-10 years from now we would definitely have a sizeable high-powered bike segment.

I would be lying if I said I'm not smacking my lips in anticipation.

PS: This could also lead to the birth of an aftermarket parts and accessories market, but that's for another article.

Private diesel vehicle sales should be taxed

The crux of my argument is that the diesel used for private purposes is not meant to be subsidized and such usage should be charged/taxed appropriately. 

The diesel price in India can be broken up into simple components. The retail diesel price = (actual cost of diesel) + (Central & State Govt. taxes) - (Subsidy by Central Govt.)

Economists would call it inefficient because the taxes and subsidy provided by the government neutralize each other a bit. The benefit is that the government does not let the local diesel price reflect the volatility of international prices.

The beneficiaries of subsidized diesel include farmers using tractors for agriculture, truckers who transport foodgrains and materials all over the country, public transport buses that transport millions across the country, and many others. But, the list also includes the owner of a diesel car/SUV for private use.

Make no mistake, a private vehicle is an item of convenience. In other words, a person owns a private vehicle (petrol or diesel) to avoid travelling by public transport. Absolutely nothing wrong with that, until the diesel vehicle owner expects the government to subsidize him for it.

It is quite shocking to see how many private diesel vehicle owners believe that subsidized diesel is their birth-right. Clearly, the subsidy is not meant for this category of diesel users. Since they pay the tax component of the diesel price, they claim that it is the government's obligation to subsidize them for their diesel joyride. But, they forget that the tax is paid even by the intended user of the subsidized diesel. On the other hand, there should be a mechanism to charge the private diesel vehicle owners for using subsidized diesel. 

Ideally, local diesel prices should be deregulated and reflect the international oil prices. This would even promote conservatism among the citizens and more efficient use of the fuel. But doing so in one sweeping move could prove catastrophic for the national economy. 

So, if diesel subsidy has to be maintained (and reduced gradually) it has to co-exist with a mechanism of charging the unintended benfactors of subsidized diesel. Possible approaches could include differential pricing of diesel (which could lead to black-marketeering), an annual tax on private diesel vehicle owners (which would be tough to implement efficiently) or a one-time tax on private diesel vehicle sales (could result in a dramatic reduction in sales of private diesel vehicles). A one-time tax on private diesel vehicle sales seems to be the easiest to implement efficiently. Such a tax could increase the revenues of our government which could be in-turn used to subsidize the fuel. Hopefully, this would also lead to the government reducing some of the taxes on diesel and in-turn its retail price.

The flip-side is that private diesel vehicle sales could drop dramatically from current levels. And people would go back to choosing a petrol or diesel vehicle based on parameters like performance, fuel-efficiency and the average kilometres they would clock in a week. Till we move to an ideal solution (which arguably might never happen), taxing private diesel vehicle sales seems to be the only way charge them for using subsidized diesel.

Do you see any other mechanism to implement such a charge? Then I would love to hear it.

Disclaimer: I maintain this opinion in spite of having a diesel vehicle in the family.

Suzuki Takes VW to Court

Do refer to our earlier post for a quick recap of how it all started.


Suzuki has filed for arbitration in the International Court against VW. Suzuki wants its shares held by VW (as part of the earlier agreement) to be returned, while VW is not interested in giving up a 20% stake in the competitor that easily.


While the details of the arbitration process do not concern us, our takeaway is that the back-door talks have failed. The co-operation agreement between VW and Suzuki has been effectively shelved.

Although a discussion on potential implications on Suzuki is out of our scope, the implication on our market is that nothing changes at Maruti Suzuki. Maruti will now continue to source diesel engine technology from Fiat Powertrain and we will continue to enjoy powerful yet frugal diesels from Maruti.


It is also likely that Maruti will license Fiat's new award-winning Multi-Air engines. These are petrol engines (developed primarily for Europe) that dynamically control combustion in each stroke within each cylinder of the engine. The end result is increased fuel-efficiency and lower CO2 emissions. A small displacement and fuel-efficient petrol engine sounds ideal for our market.


Apart from that, VW will now have to work alone and hard at cracking the Indian market using their VW and Skoda brands. They surely have their work cut out.