Excise sops for cars, consumer durables to end in the new year

By: | Updated: December 31, 2014 4:47 AM

New Year celebrations for carmakers will be muted this year, and car buyers will also find their wallets lighter, as car prices are likely to go up by...

New Year celebrations for carmakers will be muted this year, and car buyers will also find their wallets lighter, as car prices are likely to go up by 6-8% across models from January 1 as the government has decided to roll back the 4-6% excise duty cuts on automobiles announced last February. Automakers had already planned a 1-2% price increase to cope with higher input costs, but with higher excise duty back from the new year, the knock-on effect would take prices to higher level still.

Consumer durable items like fridges and TV sets would also become costlier as the 2% excise duty here too will be rolled back. Prices for entry-level cars in the R2-4 lakh range, like the Maruti Alto, will go up by almost R15,000, while hatchbacks like the Maruti Swift or Hyundai i20 will see up to R30,000 hikes.

“The government is not extending the excise duty concessions on the auto sector and consumer durables,” a senior finance ministry official said. The decision to end the excise sops is expected to help the government raise additional revenue in the remaining three months of the current fiscal to achieve the fiscal deficit target of 4.1% of GDP.

Excise duty, car makers, car buyers, auto, maruti alto

The disappointing development for the $46-billion auto manufacturing industry comes even as consumer demand is yet to completely recover after hitting a decade’s low in terms of growth. The passenger vehicle (PV) market, which includes cars, utility vehicles and vans, has now been stressed for two years, with volumes up just 2% in FY13 and down 6% in FY14. Sales in April-November of the current fiscal (2014-15) are up just about 3% at 16.85 lakh units, with the industry looking forward to strong growth next year (2015-16).

Rakesh Srivastava, senior vice-president for marketing and sales at Hyundai Motor India, said that the last three calendar years were challenging for the auto industry, and in 2015 the challenge is expected to continue. As the cost of ownership goes up along with prevailing high interest rates, demand will surely be affected.

“Cumulative price increase with our planned hike will be higher. The industry had expected the excise duty cuts to be extended, but unfortunately it has not been done. In the last 11 months since the duty cut, for four months PV sales have fallen. The small growth seen is not inclusive, and limited to only a few companies and new models,” Srivastava said. The three major carmakers showing steady growth are Maruti Suzuki, Hyundai and Honda, which cumulatively account for about 67% of PV sales.

Maruti chairman RC Bhargava, however, presented a more optimistic view. “Demand will see a temporary impact. The government is friendly to manufacturing so I am sure it has considered all aspects before taking this decision based on its compulsions. We always pass on the excise hike because nobody has that sort of margin to absorb,” he said.

In order to boost struggling car sales, excise duties were cut by the previous UPA government in the interim Budget in February. For small cars, scooters, motorcycles and commercial vehicles, duties were reduced to 8% from 12%, while for SUVs it was cut to 24% from 30%. For mid-sized cars, duties were cut to 20% from 24%, and to 24% for large cars, from 27%.

In June, the new government led by Prime Minister Narendra Modi extended the excise duty concessions by six months to December 31, which is now not being further extended.

Along with vehicles, excise duties were also cut for consumer durables sector to 10% from 12%, but even this is being rolled back. “With an increase in excise duty, all industry players would be forced to increase prices. We were expecting good sales in the first quarter of 2015, but this roll-back will dampen spirits of customers,” said Eric Braganza, Haier India president and chief of the Consumer Electronics and Appliances Manufacturers Association.

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