Two years after the government reduced the excise duty on smaller cars – from 24% to 16% – the automotive industry now asking for a similar reduction on bigger cars. If the demand gets government nod, one can expect the prices of bigger cars to drop by 5 to 6%. This means consumers may save around Rs 40,000 on a car worth Rs 8,00,000. Industry players, however, have different views over the duty structure on smaller cars. Some companies want the excise duty to be lowered to 12% from the existing 16%. They say the move will further boost the government’s plan to develop India as a global hub for small cars. Another lobby wants to retain the excise duty at 16% so that a uniform duty structure exists across all categories of cars. The two-wheeler industry, which had been badly hit after a series of interest rate hike in 2007, is seeking a reduction in excise duty on two-wheelers from 16% to 8%, along with softening of interest rates as well as easy availability of finance.
According to analysts, this Budget will certainly have something in store for the sector. “There is a probability of reduction in duty on bigger cars but if that happens it will be followed by a further cut in excise duty on smaller cars as the same duty on all cars will beat the whole purpose of developing India as a hub for small car manufacturers,” says an industry analyst, adding, ?with elections round the corner, the government cannot afford to ignore the industry, this time at least.?
The Indian auto component industry is against any further reduction in custom duty, as it would add to the already robust import of components from China. According to a pre-budget presentation made by the Automotive Component Manufacturers Association (ACMA) to the ministry of heavy industry as well and the finance ministry, the trend is likely to accelerate if the duty is reduced further. However, there could be some reprieve if the further reduction is compensated by measures like removal of all other taxes including octroi, entry tax, CST and a nationwide implementation of uniform GST as it would enhance the competitiveness of the industry, it says. “Government has to ensure that the already fragmented industry in India is at a level-playing field with other nations and one way of doing it could be by introduction of anti-dumping duty on case-to-case basis,” says Abdul Majeed, auto analyst and partner at Price Waterhouse.
“The industry is requesting uniform excise duty of 14% against present 16.6%,” adds Harish Sheth, chairman and managing director, Setco Automotive Ltd.
Upset with lower custom duty for imports from Asian countries and high input costs in the country, the auto component industry is feeling the pinch.