The Hindu Business Line : Small car, big incentives

The Budget has brought welcome relief to the auto sector, which was otherwise reeling under a slowdown caused by firm interest rates. Players across all segments, be it the two-wheeler, car or commercial vehicle makers, stand to benefit from the excise duty cuts announced.

The ailing tractors segment could also receive a fillip from the largesse on farm loan waivers.

SURPRISE CUT

There has been a surprise cut in excise duty for small cars (4,000 mm in length and engines with 1.2 litres capacity, if petrol or 1.5 litres capacity, if diesel) from 16 per cent to 12 per cent. Maruti Suzuki, a major listed player in the passenger car market, will be the main beneficiary.

The company, a leader in the compact car segment, has already been recording healthy sales numbers last year amidst a slowdown in other segments. Sales of M800, Alto, Zen, Wagon R and Swift are expected to pick up further, as a result of price cuts arising from the reduction in excise duties.

It is perfect timing for Tata Motors ahead of the launch of its Rs 1 lakh car, the ‘Nano’. Other cars such as the Indica and IndigoCS from the Tata stable, will also enjoy the benefit from duty cuts.

But while this duty cut is a major boost for the small car market it also widens the gap between the duty charged on the bigger cars (which currently attract excise of 24 per cent) and the small car.

The industry demand for a uniform duty on all cars, irrespective of their size, has thus been left unattended.

Though there are no listed players in the hybrid and electric cars space, reduction in the reduction in excise duties for hybrid cars from 24 to 14 per cent and for electric cars from 8 per cent to nil is a boost to unlisted players such as Reva, which manufacturers electric cars, and Honda, which is due to launch its hybrid car in April this year.

Pep for public transport

The excise duty cut for buses from 16 per cent to 12 per cent will benefit Ashok Leyland and Tata Motors, which have borne the brunt of the recent slowdown in the medium and heavy commercial vehicles segment.

Besides, the reduction in excise duty for two and three-wheelers will benefit prominent two-wheeler makers such as Bajaj Auto, Hero Honda and TVS Motors whose sales have been badly hit due to high interest rates and consequent unavailability of credit.

Any excise duty benefits for the Nano, without cuts for two-wheelers, would have left the industry nervy. But now, with two-wheelers attracting the same duty as the cheapest car, it remains to be seen if this cut will at all help sales of premium segment bikes or bring about a reversal in fortunes of two-wheeler companies.

With duty cuts already enabling a reduction in selling prices, any reduction in interest rates in the months ahead can only be the icing on the cake.

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