High Cost Of The High Life

governent policies aimed at discouraging consumption of highend products has
the Indian consumer paying nearly double the price of his global counterpart

Consider this: A Bentley GT costs around $220,000 in the US, but over $500,000 in India. A 2,000-sq. ft flat in downtown New York or Singapore would charge a rent of $6,000 per month, but in Mumbai, a comparatively poorly furnished flat would set you back by about $9,000. Eating out is more expensive in India, too, than in the US or Europe. “On an average, a three-course meal with drinks costs $100 (per head) in an upmarket establishment in Delhi, whereas overseas I take my clients out to a restaurant with similar fare and ambience for $50-$70,” says Sharad Duggal, director of Delhi-based garment export house Dimple Creations.
Whether a weekend break at a luxury resort or a fancy music system, upwardly mobile Indians’ long denied and cherished dream of living their life king-size is constantly running up against odds from the government and companies. The government has adopted a taxation policy aimed at discouraging consumption of high-end products and services. Imported cars attract 104 per cent duty, while cars produced in India pay just 16 per cent excise. So, a Honda Accord or a Toyota Camry that cost $25,000 in the US, cost upwards of $40,000 in India. Even hybrids or electric cars, despite the jump in global oil prices, attract the same duties. Newly introduced Honda Civic hybrid costs Rs 22 lakh in India, almost double the price of the Honda Civic petrol. In the US, the price differential between the two products is around $2,300 (Rs 1 lakh). Says Honda Siel Cars’ CEO Masahiro Takedagawa, “This is most unfortunate.”
However, the consumer himself must also take part of the blame for being less discerning. Having earned his wealth, he wants to show off even if it means buying over-priced products. He doesn’t flinch before picking up a Louis Philippe shirt off the shelf in India at a 20-25 per cent premium to the going price in the US.
Marketers often play on this mindset. A BlackBerry Curve 8300 that costs approximately $400 in the US, costs 1.7 times that in India. While Canada-based BlackBerry manufacturer, Research in Motion says pricing the phones is the prerogative of the telecom companies who bundle the phones with their airtime packages, Indian telcos marketing BlackBerry — Bharti Airtel, Vodafone, Reliance and Tata Teleservices — did not respond to BW’s queries.
Companies that did respond also found it hard to explain the high charges. For instance, nearly all products from high-end music systems maker Bose cost up to 1.5-2 times their prices in the US. “The high import duties on most luxury products make them relatively more expensive in India,” says Bose Corporation’s General Manager Ratish Pandey. But audio systems attract barely 15 per cent import duty.

COMPARING THE PRICE OF LUXURY


 
NEW YORK
TORONTO
LONDON
SINGAPORE
MUMBAI


Bentley GT
200,000
220,000
150,000
569,400
511,628


Honda Accord/
Toyota Camry
25,000
33,000
28,000
74,460
41,860


Polished diamond
(one carat)
6,000
7,000
8,000
2,920
10,500


Monthly rental for 2,000
sq ft flat
6,000
3,800
8,000
5,840
9,302


Ermenegildo Zegna
suit
1,100
1,500
2,000
1,500
3,000


Sony Vaio SZ Series
laptop
1,600
1,800
2,000
1,800
2,791


Sony Bravia 40"
2,000
2,000
3,000
2,000
2,500


Weekend holiday at
a luxury resort
3,000
1,500
2,000
1,500
2,000



Bose Acoustics Wave II
1,100
1100
1400
1300
1500


Two-hour domestic
flight (business class)
500
950
400
NA
1279


Mont blanc Solitaire
600
650
900
700
1100


Golden Retriever pup
2,000
4700
2800
2900
800


iPhone (8 GB)
400
450
500
400
800


Blackberry Curve
400
560
500
438
791


iPod Classic (160 GB)
300
320
400
300
600


Five-star hotel room
(per day)
400
350
500
110
512


High-end executive shirt
140
120
150
146
400


Average mobile phone
bill (intensive use)
99
99
129
99
300


Dinner for two
(without drinks)
150
100
150
70
200


Executive cab service
100
75
100
70
200


Moet Chandon Brut
(one bottle)
40
40
30
60
150


Black label (1 litre)
39
38
35
66
110


Spa
450
475
500
75
100


Allen Solly/Louis
Philippe shirt
40
30
50
37
50


Night club entry
30
10
50
25
40


ALL FIGURES ARE STREET PRICES IN US DOLLARS
Source: BW research

Swiss watch maker TAG Heuer’s President & CEO Jean-Christophe Babin, however, says the company absorbs all the taxes. “TAG Heuer prices in India are aligned to Dubai and Swiss markets, and are amongst the most competitive in the world,” says Babin. “It’s a huge investment for our company but we would feel embarrassed to claim a very high price in India compared to neighbouring countries.” Incidentally, at 50 per cent, India charges the world’s second highest import duty on watches, after Brazil. Companies explain that they have no choice but to stick around. “Most global players are looking to be part of the India growth story,” says Pandey. “The plan for these players will not change as India today offers great opportunity.”
The downside of such high taxes is that they stimulate the parallel, smuggled goods market, penalising companies that import their products officially. They also discourage local manufacturing of these products. For instance, both Nokia and Motorola stayed away from manufacturing in India for almost a decade after they came here, because high taxes and consequent low volumes made it unviable.
There’s a serious need for a rethink on whether taxation policies on luxury are fulfilling objectives. So far, it seems, the content has failed to justify the intent of differential taxation.
With inputs from Sumati Nagrath and M. Rajendran
rajeevdubey@abp.in
(Businessworld Issue 15-21 July 2008)

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