In what would offer major reprieve to manufacturers in the automobile industry, Finance Minister P Chidambaram in the interim budget presented today slashed excise duty on two-wheelers, passenger cars, sports utility vehicles (SUVs) and commercial vehicles between three and six%.
The cut in excise duties, which would largely be passed on to consumers, would effectively translate into average price reductions of Rs 1,500-80,000 depending on the vehicle category. The cut will remain in effect till 30 June 2014.
"To give relief to the automobile industry, which is registering unprecedented negative growth, I propose to reduce excise duty," Chidambaram said.
The announcements come on the back of passenger car sales in the Indian market declining for the first time in 11 years in 2013, by 9.59% to 1.8 million units as customers continued to defer purchases amid weak macroeconomic cues. The protracted slowdown in auto sales continued in January as car sales fell for the fourth straight month registering a decline of 7.59% to 1,60,289 units.
While compact cars (under four meter in length), motorcycles and commercial vehicles will now be charged eight% excise duty as compared to 12% levied earlier; SUVs which were slapped with an additional three% duty in the last year's budget, saw the steepest cut at six%. They would be charged at 24% excise duty as against 30% levied presently. Mid-segment and large sedans will carry excise duty of 20 and 24% respectively as against 24 and 27% levied previously. It was also proposed to make appropriate reductions in the excise duties on chassis and trailors - the rates can be reviewed at the time of regular Budget.
R C Bhargava, chairman, Maruti Suzuki India Limited (MSIL), said, "Surely the entire duty cut will be passed on to the consumer. It is difficult to predict how much benefit there will be to volumes but certainly there should be a positive impact on it. I think the next three months should be interesting…There might be a rush to buy vehicles and take benefit of the new excise duty."
"The automotive industry is the engine of growth for the manufacturing sector as a whole as it supports key industries like auto-components, capital goods, raw materials, electronics, chemicals, plastics, software etc. Revived growth in the automotive industry would have significant positive impact on these key downstream and upstream manufacturing sectors that largely depend on the performance of the auto sector", added Vikram Kirloskar, president, Society of Indian Automobile Manufacturers (SIAM).
"If these initiatives are maintained in the final FY15 budget, it should be a much needed positive stimulus for overall manufacturing sector in India", said Pawan Goenka, president (automotive division), Mahindra & Mahindra (M&M).
|Segment||Current Excise Duty||Proposed Excise Duty||Price Reduction Expected|
|Small cars||12%||8%||Rs 15,000-20,000|
|Motor vehicles of engine capacity not exceeding 1500 cc||24%||20%||Rs 32,000-48,000|
|Motor vehicles of engine capacity exceeding 1500 cc||27%||24%||Rs 40,000-50,000|
|Commercial Vehicles||12%||8%||Rs 48,000-80,000|