Automobile sector hopes to ride on excise cuts

The cut in excise duties would effectively translate into average price reductions of Rs 1,500-80,000 depending on the vehicle category

In what could be a major reprieve to manufacturers in the automobile industry, Finance Minister P Chidambaram in the interim Budget presented today slashed excise duty on two-wheelers, passenger cars, sports utility vehicles (SUVs) and commercial vehicles between three and six per cent. The cut in excise duties, which would largely be passed on to consumers, would effectively translate into average price reductions of Rs 1,500-80,000 depending on the vehicle category. The cut will remain in effect till 30 June 2014.

To give relief to the automobile industry, which is registering unprecedented negative growth, I propose to reduce excise duty," Chidambaram said. The announcements come after passenger car sales in the Indian market declined for the first time in 11 years in 2013 by 9.59 per cent to 1.8 million units as customers continued to defer purchases amid weak macroeconomic cues. The protracted slowdown in auto sales continued in January as car sales fell for the fourth straight month registering a decline of 7.59 per cent to 1,60,289 units.

While compact cars (under four meter in length), motorcycles and commercial vehicles will now be charged eight per cent excise duty as compared to 12 per cent levied earlier; SUVs which were slapped with an additional three per cent duty in the last year's Budget, saw the steepest cut at six per cent. They would be charged at 24 per cent excise duty against 30 per cent levied currently. Mid-segment and large sedans will carry excise duty of 20 and 24 per cent respectively, against 24 and 27 per cent levied previously. It was also proposed to make appropriate reductions in the excise duties on chassis and trailors; the rates can be reviewed at the time of the regular Budget.

R C Bhargava, chairman, Maruti Suzuki India, said, "Surely the entire duty cut will be passed on to the consumer. It is difficult to predict how much benefit there will be to volumes but certainly there should be a positive impact on it. I think the next three months should be interesting. There might be a rush to buy vehicles and take benefit of the new excise duty."

"The automotive industry is the engine of growth for the manufacturing sector as a whole as it supports key industries like auto-components, capital goods, raw materials, electronics, chemicals, plastics, software etc. Revived growth in the automotive industry would have significant positive impact on these key downstream and upstream manufacturing sectors," added Vikram Kirloskar, president, Society of Indian Automobile Manufacturers.

"If these initiatives are maintained in the FY15 Budget, it should be a much needed positive stimulus for the manufacturing sector," said Pawan Goenka, president (automotive division), M&M.