Car industry's apex body wants stimulus

The once-booming domestic car industry, looking at declining growth numbers month after month, wants tax relief.

Car and commercial vehicle making companies have approached the industry’s apex body, the Society of Indian Automobile Manufacturers (Siam), to lobby for duty relief and to seek a stay or to postpone the government's idea of additional duty on a certain section of vehicles.

Sources say the industry could also seek an excise duty cut on the lines of the twin stimulus packages from the government three years ago. The government had slashed the duty on small cars by four percentage points, over two stimulus packages in late 2008.

Arvind Saxena, director (marketing and sales), Hyundai Motor India, said, "A 25-basis point increase or decrease (in interest rates) is not hurting us. What is hurting us is the 300-bps increase done already. As an indication of things to come, it is a sentiment issue. There is no general optimism in the industry any more. We hope there is some intervention in the (Union) Budget which could change all this, because government's effort to reduce inflation by raising rates has only hurt growth."

Siam last month predicted a further fall in growth of passenger car sales, for the third time in a row this financial year, after these had declined 3.5 per cent in the eight months so far. This had forced all manufacturers to offer discounts of five to 15 per cent of the cost of the vehicle. High interest rates, inflation and spiralling fuel costs had dampened spirits of buyers, resulting in lowered inquiries across showrooms. Vehicle makers were forced to resort to production cuts and operate at lower levels.

To avoid further deterioration of margins, companies are raising prices across product lines, a result of the increased price of raw materials and the depreciating value of the Indian currency.

The country's largest car maker, Maruti Suzuki, will announce a price rise across its products next week, the second in less than two months (it raised prices in November on diesel cars). Prakash Telang, managing director (India operations), Tata Motors, said: “Siam has given its views to the government for formulation of the budget.” Tata, the country's third largest car maker, said is was not looking at a rise in product rises in the near term but would check if input prices were cooling in the coming days and then decide.

However, due to depleted government revenues and rising debt, industry players are sceptical if the government would make any duty cuts in the coming Budget.

R C Bhargava, chairman, Maruti Suzuki, said, "I haven’t heard any economist outside the government saying 2012-13 would be a great year. The car segment growth depends very much on the economy. Government revenues have declined substantially, with the deficit target going to be overshot substantially. And, with new expenditures coming along, it will be difficult for the government to make such a move. All of us will be very happy if the excise duty is cut.”