Auto sector seeks status quo on excise, customs duty rates

Roudra Bhattacharya Mumbai | Updated on February 18, 2011


After witnessing an exceptionally good year in sales, the auto industry is now looking for a continuation of sops and added incentives from the Budget to keep the growth momentum intact.

This is because higher commodity prices, rising inflation and interest rates have already started gnawing at the profit margins of most players.

Moreover, there is the added discomfort that the Centre may look to finance a widening fiscal deficit though a two per cent rollback of the excise duty which had been pared down during the slowdown.

Growth outlook

Though auto sales went up 31 per cent in calendar 2010, the combined effect of these challenges has led industry experts to give a more moderate growth outlook of 15 per cent for 2011.

“Though the Government has to ensure that the fiscal deficit is kept under control, we do not want any drastic changes in the tax rates. The interest rates are anyway going up with rising inflation, so any added challenge will only prove detrimental to industrial growth,” Mr R.C. Bhargava, Chairman, Maruti Suzuki, told Business Line.

Rising interest rates and commodity prices have triggered an increase in vehicle prices across segments.

Maruti Suzuki, General Motors, Hyundai and Skoda have already hiked prices by up to two per cent this year. In addition, rising inflation and fuel prices have led to tighter household budgets and lower buying power, though these have been offset to an extent by rapidly rising income levels.

Auto wish-list

The Society of Indian Automobile Manufacturers has submitted a proposal to the Finance Ministry seeking a status quo in the current tax structure. “We want the Customs duties to remain and are hoping for no rollback of excise. However, anomalies in the taxation procedures should be corrected. The Centre should also apply the normal rate of excise of 14 per cent for all cars with a deduction for small cars,” said the SIAM Director-General, Mr Vishnu Mathur.

Taxation anomalies refer to the sale of special vehicles such as ambulances on which excise duty is paid on sale but later refunded due to an existing incentive by the Centre.

At present, small cars and two-wheelers attract 10 per cent excise duty, while it is 22 per cent for bigger vehicles.

General Motors India, which saw domestic sales growth of 60 per cent last year, feels that improvement in infrastructure, including road-building and reforms in existing laws, can be a boon for the auto market.

“We would like the Centre to have a renewed focus on infrastructure growth, besides labour law reforms. While the current duty structure needs to be maintained, there should be an early introduction of GST. Inflation should also be controlled through better monetary policy,” said Mr P. Balendran, Vice-President, General Motors India. Meanwhile, Mr Roy Kurian, National Business Head, India, Yamaha Motor, adds that customs duty on critical raw materials needs to be controlled to stop product prices from spiralling upwards.

“Last year's growth has been a boon to the auto industry. To have the momentum despite the high petrol price, the Government should not touch excise duty at all.

“The customs duty on materials such as steel and aluminium should not be raised as this will put pressure on the pricing of automobiles. A focus on credit availability to two-wheeler loans and reasonable interest rates could boost sales,” he said.

Eco-friendly vehicles

Auto companies are also looking for increased incentives for vehicles running on optional fuels.

While Mr Bhargava said incentives for CNG vehicles should be increased to make them more viable, Mr Balendran hoped for a special incentive for eco-friendly vehicles and the weighted deduction on R&D given in Budget 2010-11, extended for 10 years.

The nascent electric vehicle industry has asked the Centre to reduce import duties on spare batteries from 26 per cent.

It also wants lower excise duties for localised components which are at around 8-10 per cent.

“Though the battery import duty for vehicles is four per cent, the import duty for spare batteries is 26 per cent. This needs to be brought down as the battery life on new vehicles is limited,” said Mr Sohinder Gill, Director (Corporate Affairs), Society of Manufacturers of Electric Vehicles, and CEO, Hero Electric.

Mahindra Reva Electric Vehicles, the only electric carmaker in India, has asked the Centre to set up charging infrastructure for vehicles and increase the annual vehicle allocation under the Ministry of New and Renewable Energy's subsidy scheme to 3,000 cars from the current 600.


Published on February 16, 2011

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