Industry & Economy
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Automobiles
Indirect momentum
THE Finance Minister has put paid to the automobile industry's hopes of landing another cut in excise duty. However, the Budget's overall focus on boosting investment in infrastructure, particularly in rural development and highways, should indirectly have a salubrious effect on the automobile industry.
The reduction in customs duty on inputs and raw materials, the extension of benefits for automobile research and development, the cut in customs duties for the import of refrigerated vans and on components for the manufacture of battery-operated vehicles and the increased allocation for automotive R&D will boost the industry's growth plans.
Two other initiatives that will indirectly help sustain demand for the automobile industry's products are retaining status quo for prices of petrol and diesel (despite the changes to a number of levies) and the direct tax measures that will attempt to increase the disposable income in the hands of individuals who may eventually be potential car buyers.
The automobile component industry should benefit from the reduction in customs duty on alloy steel. The planned outlay of over Rs 9,300 crore for highway development and four-laning of high-density highways that do not form part of the Golden Quadrilateral will also have a positive effect on the automobile industry in the long-term.
But the automobile industry is likely to tone down its growth projections for 2005-06, as the expected cut in excise duty on passenger cars was not announced in the Budget.
An excise duty cut would have lowered the retail prices of cars and utility vehicles and made them more attractive or at the least helped companies retain prices at the existing levels.
This point will be particularly relevant during 2005-06, as prices of cars and passenger vehicles are set to go up due to the new technological inputs that will be required for complying with the new Bharat Stage III norms.
The auto industry has been facing an increase in competitive pressures and a rise in input costs, particularly due to increasing steel prices. While the increase in excise duty on steel announced in the Budget will be Modvatable for the auto industry, the overall trend of rising input costs is set to continue.
S. Muralidhar
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