Auto industry welcomes excise duty-slashing Interim Budget

The Interim Budget, announced today, has brought cheer to the Indian automotive industry, Union finance minister P Chidambaram has cut excise duties for small cars, two-wheelers and commercial vehicles from 12 percent to 8 percent; on SUVs from 30 percent to 24 percent, and on large and midsized cars from 27 percent to 24 percent and from 24 percent to 20 percent respectively.

The reduction to 8 percent takes the excise duty cut on small cars to the same levels as 2010 when the Centre had announced the sop for the sector in the aftermath of the global slowdown.

The auto sector was disappointed in 2013 when excise duties on SUVs were raised by three percent from 27 percent with SUVs being defined, among other criteria, as vehicles with a ground clearance of 170mm and above, a criterion that many found devoid of any logic.

Among the OEMs which will benefit hugely from the slashed duty on SUVs is Mahindra & Mahindra whose sales have been impacted substantially since the last upward revision. Manufacturers of small cars, the highest-selling car segment in the country, are upbeat and most will begin announcing revised prices soon.

Dr Pawan Goenka, executive director and president (AFS), M&M, said: “We are delighted at the steps taken to boost the manufacturing sector and especially the auto industry. The Budget announcements are quite positive and should give relief to the auto industry by boosting demand. If these initiatives are maintained in the final FY15 Budget, it should be a much-needed positive stimulus for the overall manufacturing sector in India.”

“The interim Budget announcements are encouraging for the automobile sector with excise duty reductions across all segments including small cars, sedans and SUVs. GM India will pass on the excise duty relief to its consumers,” said P Balendran, VP, General Motors India.

 The latest news will come as a relief for the auto sector which has been made several pleas for a stimulus package to revive flagging sales. Passenger car sales in India fell 5.22 percent in April-January 2013-14 with 14,54,692 units sold as against 15,34,868 units sold in the 10-month period ended January 2013.

The badly hit CV sector, which has seen a 18.63 percent decline in sales over April-January 2013-2014, can now look forward to a revival in demand.

SIAM and ACMA, the apex industry associations, have welcomed the duty cuts. Vikram Kirloskar, president, SIAM, said: “This reduction in excise duty would reduce the acquisition price, thereby making vehicles more affordable, improve consumer sentiment and hopefully revive the demand for vehicles. The automotive industry is the engine of growth for the manufacturing sector as it supports key industries like auto components, capital goods, raw materials, electronics, chemicals, plastics, and software. Revived growth in the automotive industry would have significant positive impact on these key downstream and upstream manufacturing sectors that largely depend on the performance of the auto sector. This could hopefully herald a revival of the manufacturing sector in the days to come.”

Congratulating the Union finance minister, Harish Lakshman, president, ACMA, said, “We are glad that, given the circumstances, he has unveiled a pragmatic budget. ACMA welcomes the reduction in excise duty on vehicles. The automotive industry has been reeling under significant pressure for quite some time now; the reduction in excise duty is timely and will help boost the sagging morale of the automotive sector. Further, the reduction in excise duty on capital goods from 12 percent to 10 percent will stimulate the industry for higher investments in manufacturing.”

“Manufacturing is a direct function of the vehicle industry and hopefully the Budget will lift the sagging sentiments and confidence of the industry,” added Vinnie Mehta, executive director, ACMA.

Meanwhile, Wilfried Aulbur, managing partner, Roland Berger Strategy Consultants, commented: “The reduction in excise duty gives the automotive industry a much- needed relief after many quarters of demand side challenges. The action of government is welcome, but we reiterate the need to fix the basics of the Indian manufacturing model. We need good infrastructure, reliable and competitively priced electricity and flexible labour laws that allow linkage between salary increases and productivity gains. Consistent policies must help to address the root causes of weak consumer sentiment such as high interest rates, stubbornly high inflation, and increasing fuel prices.”

Photograph courtesy: Press Information Bureau