The UPA government had reduced the excise duty in its interim budget presented in February for a period of four months ending June 30. Announcing the extension of the concessional duty, finance minister Arun Jaitley said that since the Budget would be presented on July 10, the extension was warranted at this stage. Considering the present situation in various sectors, the government has decided to extend the facility of this reduced excise duty to all those sections for a further period of six months, ie, they will continue till December 31, 2014, Jaitley said in a brief statement outside his North Block office.
Continuation of the concessional duty will benefit the economy and therefore the revenue loss in the short term could
be made up in the long term, the minister said in reply to a question on the revenue implications of the decision.
Small cars, scooters, motorcycles and commercial vehicles will continue to attract 8% excise duty, mid-segment cars will bear 20% duty while sports utility vehicles and large cars will attract 24% duty for another six months. These products earlier attracted a levy 4-6 percentage points higher prior to February 17.
Wednesdays decision to extend duty benefits comes in the wake of car sales having fallen for the second consecutive fiscal in 2013-14 with a drop of 4.65% on demand slowdown, though the market has started showing some improvement since May. Capital goods production, which expanded unexpectedly by 15.7% in April this year, had contracted in 18 of the 25 months through April, indicating the persistent weakness in the sector. Consumer goods production too had shrunk 5.1% in April, its seventh month of contraction on the trot.
In a late-evening statement, Jaitley said he expected industry to pass on the benefit of the duty concessions to consumers as well as show positive growth response in the coming months. The statement also said the idea was to provide a fillip to the capital goods and automobile sectors, given the governments commitment to revive economic growth.
Vikram Kirloskar, president of the Society of Indian Automobile Manufacturers and vice-chairman at Toyota Kirloskar Motors, said that the quick and timely action taken by the government is an indication of the high level of responsiveness of the new leadership to the needs not only of the automotive industry but of the manufacturing sector as a whole.
We are certain that the extension of the reduced excise duty will contribute positively to improve the buyer sentiment and would help in bringing about a sustained recovery in the automotive industry that has been languishing for over two years now. This will go a long way in bringing back growth, investments in the industry as well as encourage higher employment, he said.
The auto industrys jubilant reaction to the continuation of reduced excise duty regime is understandable because this Februarys duty cut took over three months to translate into a positive impact for the industry in terms of volume growth. Despite the lower rate announced in the interim budget, passenger vehicle (includes cars, utility vehicles and vans) volumes had been down through February (-4%), March (-7%) and April (-9.5%) this year, but May saw the market bouncing back after almost two years of decline. In May, volumes for both car and passenger vehicle segments rose 3% year-on-year to 1.48 lakh units and 2.07 lakh units, respectively, and the expectation is that June is going to be a good month as well.
The hope is that a continuation of the stimulus will bring the industry back into the black, especially with the festive season around the corner when consumer demand usually sees an upswing.
We in the auto industry are delighted at this proactive announcement by the finance minister. This will give the much needed boost to industry as we lead up to the festive season, said Pawan Goenka, executive director at the countrys largest utility vehicle maker, Mahindra & Mahindra.