Siam cuts passenger vehicles growth forecast due to infrastructure cess

It has pegged the sales growth for passenger vehicles (PVs) at 6-8% this fiscal and 11% for the next

Auto industry body Siam today cut the growth forecast for passenger vehicles sales for the ongoing and next fiscals, expecting demand to suffer due to infrastructure cess of up to 4% announced in the Budget.

Society of Indian Automobile Manufacturers (Siam) has pegged the sales growth for passenger vehicles (PVs) at 6-8% this fiscal and 11% for the next.

"Although we had forecast initially in the beginning of this fiscal that we expect growth of PVs to be 6-8%, we have increased it to around 10% when sales picked up during the year. Now due to the infrastructure cess we are revising it back to 6-8%," Siam Deputy Director General Sugato Sen told PTI.

Explaining the rationale, he said, "Usually March is a good month for the auto industry from a sales point of view but this year it may not be after post Budget announcements. This March is going to be a difficult one."

Car sales have dropped for two consecutive months in January and February after 14 straight months of growth.

Total domestic passenger vehicle sales in April-February stood at 25,32,736 units as against 23,55,991 units in the year-ago period, up 7.5%.

In Budget 2016-17, Finance Minister Arun Jaitley had announced infrastructure cess of of 1% on petrol/ LPG/CNG driven vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,200cc.

Singling out diesel vehicles in the aftermath of pollution problems in the national capital, he also imposed 2.5% cess on diesel vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,500cc, while higher engine capacity and SUVs and bigger sedans were slapped a cess of 4% on the value of the car.

The minister also proposed "to collect tax at source at the rate of 1% on purchase of luxury cars exceeding value of Rs 10 lakh".

When asked about impact on the cess on sales in the next fiscal, Sen said: "We had initially said the PVs will grow around 12% but now it has been revised downward to 11%."

He, however, said different measures announced in Budget, specially for investments in infrastructure and steps to boost the rural economy will help demand for automobiles overall in the long term.