The Hindu Business Line : Tractor cos seek excise exemption for inputs

THE Tractor Manufacturers Association (TMA) is planning to send a representation to the Finance Minister on Monday requesting that tractor makers be exempt from paying excise on inputs (components) as well.

It is of the opinion that the exemption from excise duty on tractors, announced in the Union Budget, would not result in a commensurate 16 per cent benefit for tractor companies. Tractor makers will not be able to avail themselves of Modvat credit following the exemption, leading to higher production costs.

According to Mr R.C. Jain, President, TMA and Chief Executive (Group Affairs) - Eicher Group, the net benefit to the farmer in terms of price reductions can thereby only be in the region of 3 per cent.

"The exemption from payment of excise on inputs would allow tractor makers to reduce prices further to the benefit of the farmer," he said.

Also, in its existing form, the Budget proposal would result in more benefits for tractor makers who make a large percentage of components in-house. The Finance Minister had announced that components captively consumed in the factory would be exempt from excise duty.

This proposal has also worried tractor component suppliers as the trend discourages outsourcing of components. It is now more cost-effective to make key components in-house rather than for tractor makers to outsource them.

In the meantime, officials of several tractor companies point out that they are working out a plan to announce a decline in tractor prices by 3per cent-4 per cent over the next few days.

"We could have passed on a larger price decline to the farmer had the excise on inputs been exempt," an official from a leading tractor manufacturing company said.

The decline in this case would only be large enough to offset the increase in prices that tractor makers had announced in April. Tractor manufacturers were then compelled to increase prices due to the rise in key raw material costs such as steel.

The domestic tractor industry is on a recovery path. After seeing negative growth for four consecutive years, the industry had grown by about 10.5 per cent last fiscal.

More Stories on : Budget | HCV/LCV/Tractors | Excise and Customs

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