The move benefited some models of Maruti, Hyundai and Tata Motors. The companies passed on the benefit to consumers by way of price cuts in the range of Rs 20,000-25,000 on Maruti 800, Alto, Tata Indica, Hyundai Santro, WagonR, and Zen. Now, the industry is wants the government to do away with the duty differential between small cars and all others. Even if the government does not accede to this demand but widens the small car definition, it will bring immediate relief to models like Maruti Swift, Fiat Palio and Hyundai Getz, which are only a wee bit bigger than the government's small car definition.

As a result, these cars would be cheaper by about Rs 30,000. However, according to available indications, the finance ministry doesn't seem to be in favour of an across the board cut in excise duty. “It is possible to further promote small cars in India. But we don't think excise duty on other cars should be cut as we want to make India a hub for small cars,” said a finance ministry official. Going by this rationale, reduction in duty small cars to 8% alongwith that on two-wheelers maybe expected. The excise duty on two wheelers is at 16%.

If the excise duty is cut across the board, it would benefit mid-size cars such as the Honda City, the Maruti Esteem and the Hyundai Accent, which may become cheaper by about Rs 32,000 to Rs 35,000. The move may also see prices of luxury cars such as the Mercedes and the BMW coming down by about Rs 2.25 lakh.

“If the government wants to promote small cars, it may incentivise it in a different way,” said a SIAM official. “Small cars should not be promoted at the cost of big cars,” pointed out K K Swamy, deputy managing director, Toyota Kirloskar and chairman of the Committee on Taxation formed by SIAM.

Quick Take

• In Budget 2006-07, the finance minister cut excise duty to 16% for small cars • Reduction in duty on small cars to 8% alongwith that on two-wheelers maybe expected this time

The chamber has also urged the finance minister to extend the benefit of weighted deduction at 150% of research and development (R&D) expenditure for another 10 years and one time incentive based fleet modernisation programme to be launched during the year. It has also demanded retention of custom duty on completely built units (CBUs) of passenger cars, two and three wheelers at the current level. It said CBUs of commercial vehicles should be de-linked from other tariffs. At present, custom duty on used passenger cars, two wheelers and passenger three wheelers is 100% and of new make attract a duty of 60%. These rates are likely to be retained.

The component manufacturers represented by the Automotive Component Manufacturers Association of India (ACMA), have however, urged the government to maintain a differential duty structure for big and small cars. In fact, Acma wants duty on small cars and two wheelers to be further brought down to 8%. They are, however, opposed to any cut in custom duty of components. In its move to contain inflation, the finance ministry reduced the custom duty on about 65 auto components mainly engine parts to 7.5% from 12.5% during the last week. “Such moves would make India an assembly hub and not manufacturing hub,” said Vishnu Mathur, executive director, ACMA.

The domestic automobile industry has shown impressive growth in the first nine months of the current fiscal.