No tax cut, but luxury goods cos hopeful of indirect gains

Makers of luxury goods, jewellery, high-end bikes and premium chocolates, which will attract the same or slightly higher goods and service tax rates, are increasing retail stocks and lining up new launches and campaigns, betting on ripple effects of the widespread GST cuts.

“Second and third-order benefits are what the economy will see,” said Ajoy Chawla, chief executive officer of Titan Company‘s jewellery division. “We see it coming to our sector, and if we’re not prepared for growth, we will not be able to take advantage of it.”

GST rates on gold and silver jewellery remain unchanged at 3%, with an additional 5% on making charges, while two-wheelers with engine capacity upwards of 350cc will attract a levy of 40% effective September 22, compared to 31% currently. Yet, brands in segments that don’t directly benefit from the GST cuts on most products and services starting September 22, expect indirect benefits from improved consumer sentiment may reverse the demand slowdown for these products as well.

“The GST overhaul is a huge boost to sentiment,” said a senior executive at a two-wheeler maker who did not wish to be identified.

“When it comes to our bigger bikes (priced upwards of ₹10 lakh), customers are more immune to price increases. They are not affected much by price hikes of a couple of thousand rupees,” he said.

For bike makers such as Royal Enfield and Honda, insiders said they don’t expect any negative impact on demand, despite an increase in GST in select few categories.

The executive cited above said the actual on-ground impact would be known over the next three-four months, adding that he expects the segment to remain stable and do well going ahead. About 75,000 motorcycles with engine capacity upwards of 350cc were sold in the local market in the first five months of the fiscal, shows data available with the Society of Indian Automobile Manufacturers (SIAM).

Major players in this segment include Bajaj Auto (KTM, Husqvarna), Royal Enfield, Harley Davidson, among others. Royal Enfield sees 10% of its sales from motorcycles with engine capacity over 350cc-the segment where the GST is being raised from 31% to 40%.

Two-wheelers of 350cc and below will see GST come down to 18% from 28%.

Hardeep Singh Brar, president and CEO of BMW Group India, said high-performance models like the S 1000 RR, R 1300 GS-GSA, BMW F 900-GS-GSA have been seeing good growth for the past few years.

“These are dream bikes for motorcycle enthusiasts and while they have become dearer, we still expect that the demand for these highly emotional products should remain stable, if not more,” he said.

Brar said BMW offers several flexible finance options “to make the cost of ownership more attractive for our customers.”