Excise cut brings relief

In a bid to stimulate industrial growth and drive consumer demand, the government cut the excise duty by 2 percent and service tax by a similar amount on February 24.

For the automotive sector, these cuts would lead to lower prices for trucks, tyres, cargo three-wheelers, hybrid cars and auto components This is part of the government’s attempt at ensuring that economic growth in India does not drop off significantly, due to the effects of the global economic crisis.

Acting finance minister Pranab Mukherjee made these announcements in parliament during a debate on the 2009-10 budget. Excise duty has been reduced to 8 percent from 10 percent earlier, while service tax is now down to 10 percent from 12 percent on all taxable services.

Mukherjee also clarified that excise duty cuts of 4 percent announced earlier as part of the government stimulus package would be extended into the new fiscal year beginning April 2009.

The Confederation of Indian Industry (CII) welcomed these reductions saying that they will provide a much needed boost for the economy and “would go a long way in stimulating consumption demand” according to director-general, Chandrajit Banerjee. Subsequent to this reduction in excise, leading truck makers Tata Motors, Eicher Motors and Ashok Leyland confirmed that they had cut prices and passed on the benefits to customers.

This would bring prices down on average by slightly more than Rs 16,000 per truck. However, they do not think that this price reduction will result in a big spurt in demand for trucks. According to R Seshasayee, managing director, Ashok Leyland, “Demand for trucks is driven by construction, road development and mining activities. Unless the real economy picks up, there will be no immediate jump in demand.” He also said that interest rates on truck finance also need to come down if truck sales are to increase substantially.

Tyre makers have also passed on the excise cut with JK Tyre, Apollo and Ceat all announcing reductions. JK cut prices by between Rs 125 and Rs 175 per tyre, while Ceat also confirmed that the entire two percent cut would be passed onto its customers. Apollo lowered prices on its range of commercial radial and cross-ply tyres. Hindustan Motors cut the price of its 2.3-tonne light truck the HM-Shifeng Winner by Rs 7,000, from the current level of Rs 3.9 lakh. In addition, it would also be passing on the duty cut benefit on castings and forgings that it supplies to automotive manufacturers.