The Hindu Business Line : How long is 'small'

The Finance Minister, Mr P. Chidambaram, and his ministerial team have chosen to define a small car for the purpose of excise duty cut as one whose overall length (size class) falls within 4,000mm .

Another parameter that will restrict the carseligible for the lower level of excise is the engine size: Within 1,200 cc if it is petrol driven and within 1,500cc (or 1.5 litre) if it is diesel.

This definition of a small car then restricts the eligible cars to the Maruti quartet ( M800, Alto, Zen and WagonR), the Hyundai Santro and the Tata Indica diesel.

Other B-segment cars such as the Fiat Palio, the Suzuki Swift, the Hyundai Getz, theOpel Corsa and the Tata Indica Xeta petrol are not eligible for the excise duty cut owing to the restrictions imposed by the new definition.

On the other hand, the definition of a small car in the New Auto Policy announced in 2002 simply calls a small passenger car as one with a total length of up to 3.8 metres. No other restriction or parameter is mentioned.

Though the Budget's definition of a small car has actually increased the allowable length by 200mm, to four metres, the other clause is restrictive.

Countries such as Japan and Italy give small cars a more restricted definition. But this is largely due to their policy to discourage the use of larger cars, as they occupy more road space, fill out parking lots in crowded cities, consume more fuel and, consequently, pollute even more.

Barring Japan, where small cars eligible for subsidies and waivers are restricted to ones with engines within the 660cc size, other countries' definitions are not so restrictive. In the Indian context, the attempt seems to be to make the country a hub for manufacture of such cars.

But some in the industry feel that the new Budget definition is too restrictive and may throttle the development of cars in the B+ segment (premium small car), which could turn out to be the future of the small car category.

Tata Motors' petrol version of the Indica is not eligible for the excise duty cut.

The company's Managing Director, Mr Ravi Kant, welcomed the eight per cent cut but felt that the Government should have stuck with the Auto Policy's definition of a small car.

Coming up with new definitions for classifying cars that are eligible for lower excise duty will lead to a lot of confusion and eventually make it even more difficult for manufacturers to plan new products, he felt.

Tinkering with the definition, making it more complicated and conflict with the definition announced by another arm of the Government, will only further the problems of car manufacturers who typically have to plan their new products at least three years in advance, he said.

Mr Kant, who is also the vice-president of the Society of Indian Automobile Manufacturers (SIAM), pointed out that cutting the excise duty on small cars and offering preferential treatment for this segment of passenger vehicles is not new, but consistency of policy regarding the definition of small cars is essential to avoid sending conflicting signals to the industry.