Automakers look forward to tax breaks, export incentives to sustain momentum

Written by Corporate Bureau | New Delhi, Mumbai | Updated: Jun 9 2009, 07:12am hrs
Budget 2009
Despite four consecutive months of positive growth, the forthcoming Budget will determine the future course of the countrys automobile industry, feel experts and analysts. Passenger car sales were up 2.48% in May, to 1,13,490 units, according to the Society of Indian Automobile Manufacturers.

The current trends are encouraging. Things are looking up just a bit, but it is far from a turnaround. The Budget will be very important in terms of difference in excise duty on small cars and bigger cars, which has skewed the industry. Moreover, there is a huge scope of further reduction in interest rates, as retail lending continues to be at a higher rate as compared to the rates of the central bank, says Jnaneswar Sen, senior general manager (marketing), Honda Siel Cars India.

After the 4% reduction in Cenvat across-the-board in the first stimulus package last December, small cars now attract 8% excise duty against 20% on bigger cars along with an additional duty of Rs 15,000 and Rs 20,000 on cars above 1500cc and 2000cc, respectively.

The growth will only go up in next few months because of the low base, as sales had started declining around this time last year. But the industry seriously needs some kind of export incentives as well as incentives to boost demand in the domestic market, says Arvind Saxena, senior vice-president (sales & marketing), Hyundai Motor India. He pointed to the erstwhile Target Plus scheme that acted as a key growth driver of car exports from the country. Hyundai accounts for over 70% of car exports from India.

Whatever growth we have seen in the last three-four months has been because of the effect of the two stimulus packages. Unfortunately, the effect is fading. To keep the growth going, the industry needs more stimulus from the government, says Sugato Sen, senior director, Siam.

VG Ramakrishnan, director, automotive and transportation, Frost & Sullivan, South Asia and Middle East, says, The need of the hour is to eliminate additional taxes and excise duty. Further, rationalisation of value-added-tax is another area to be looked at closely, besides making finance available at the consumer level.

Industry too was expecting softer rates. Bharat Doshi, chief financial officer, M&M, had said, With a new and stable government in place, we expect interest rates to be benign. Though the bankers are cautious, there is adequate liquidity in the market.