At present, in the automobile sector, two-wheelers and heavy vehicles attract an excise duty of 16 per cent. Only cars are levied 32 per cent excise duty. The perception could be that it is a luxury item even though the government had announced earlier that there would be a uniform 16 per cent duty on all types of automobiles.
It may be mentioned here that car manufacturers are merely assemblers and marketers of cars. Almost 70 to 80 per cent of components are outsourced. Therefore, car manufacturers are the engine of growth for the component industry. If we are able to strengthen this industry, not only the manufacturing sector as a whole would improve, but there would be a spin-off effect on raw material suppliers such as of steel and rubber.
The philosophy behind the key proposal on reduction of excise duty on passenger cars is that the current rate is not economically tenable as it makes the total incidence of taxes and other levies more than 65 per cent.
Besides, we need to encourage the component sector so that domestic volumes would enable them to be competitive for exports.
It may be mentioned that two years back, car sales in India were higher than China. Then their government decided to focus on this sector and took a series of decisions including financing, etc, and their industry has grown 50 per cent per annum since the last two years. With the result that they have crossed one million mark, while we would be still around 6,00,000.
There is a pressing need to take a re-look at the excise structure for the automobile sector. Reduction of excise duty to the central rate of 16 per cent will surely give a boost to the car segment and it will also have a positive fallout on the component industry.
MD, Maruti Udyog Ltd