Industry cheers FM’s move to extend excise duty cuts

Arun Jaitley, finance minister of the Union government, has announced today what the industry was ‘desperately’ looking for. The excise duty reduction by the previous government has been extended till December 31, 2014.

Automakers were a worried lot given that the reduced excise duty on vehicles in the interim Budget presented on February 17 this year was valid only till June 30. The excise duty on small cars, motorcycles, scooters and commercial vehicles had been cut to 8 percent from 12 percent, while that on SUVs was reduced to 24 percent from the earlier 30 percent. On large cars, it was reduced to 24 percent from 27 percent earlier and to 20 percent from 24 percent on midsized cars. The duty on auto components (under Chapter 84 and 85) had been cut by two percentage points to 10 percent.

Welcoming the finance minister’s move, Vikram Kirloskar, president of the Society of Indian Automobile Manufacturers (SIAM), said: ““We are certain that the extension of the reduced excise duty will contribute positively to improve buyer sentiment and would help in bringing about a sustained recovery in the automotive industry that has been languishing for over two years now. This will go a long way in bringing back growth and investments in the industry as well as encourage higher employment.” 

“The extension of lower excise duty benefit is a positive move. It will send positive vibes to the market. We have been desperately waiting for it,” says Sugato Sen, deputy director-general, SIAM. He also feels that it would have helped the industry more if the extension was made till the end of the current financial year. Pravin Shah, chief executive – automotive sector, Mahindra & Mahindra, has a similar opinion. He also applauds the FM’s decision since it comes on the backdrop of an economy that is going through a tough phase. “It is a good step, considering that the government wasn’t in a position to reduce excise duty further,” Shah told Autocar Professional over the phone from USA.

Some players are looking forward to the Union Budget on July 10, hoping the finance minister will further extend the excise deal. “It’s a welcome decision and we hope the government will extend it for the full year in the Budget as the sector continues to be sluggish. We also expect the government to announce other measures in the Budget to revive growth,” said Arvind Saxena, president and managing director, GM India.

Sumit Sawhney, country CEO and MD for Renault in India, said: “The new government has shown a positive intent towards the growth of key sectors to revive the Indian economy. The extension of excise duty reduction for automobiles is a welcome move and a step in the right direction by the government, fortifying its intent to support the progress in the auto sector. We would like the government to take a long-term view to have a unified excise duty structure and look forward to further reduction in the duty.'

A Tata Motors spokesperson said: “The excise reduction was a positive step for the automobile industry and we are glad to see it extended as it will help the industry while we await other significant policy decisions to revive the economy.”

The finance minister reportedly said that the extension is expected to help India’s ailing economy.

The latest announcement comes on the backdrop of a period which many automotive industry executives say is the “worst ever”. Passenger car sales in India fell for two consecutive years and saw a fall of nearly 5 percent in 2013-14. The medium and heavy truck segment, which is considered as the ‘barometer’ of the economy, fell a whopping 27 percent during the last fiscal. This segment seems to be recovering a bit in the current financial year with a reduction in the extent of fall in sales. The reversal of the mining ban in some areas a few months ago is also seen as a welcome step by players in the commercial vehicle segment.

The latest announcement may keep some companies away from hiking prices, which was earlier expected to kick in from July 1. But a statement from Nissan indicates that there are other factors that could still lead to a price increase. "We will continue to pass this benefit to our dealers and customers. However, the recent increase in freight cost, rising fuel prices, high interest rates and the weak monsoon forecast play a dampening effect in the overall economic growth and tough market conditions that is being faced by us,” says Sunil Rekhi, chief financial officer, Nissan Motor India.