Macro Economy

Auto sector welcomes extension in excise duty cuts

Murali Gopalan Mumbai | Updated on June 25, 2014

The auto industry has every reason to feel elated with the Government extending the excise duty sops to December 31 this year.

The previous UPA regime had announced these duty cuts in its Interim Budget of February. These would have been in force till June 30 but given the poor state of the industry, the BJP has thought it fit to continue these concessions for the next six months.

Excise duty levels on SUVs and large cars had been slashed to 24 per cent (from 30 and 27 per cent) and to 20 (24) per cent for mid-size cars. In the case of commercial vehicles, small cars and two-wheelers, the duties were reduced to eight from 12 per cent.

Venu Srinivasan, Chairman and Managing Director of TVS Motor Company, welcomed the move to extend these duty cuts till the end of the year. “The industry needs this support till economic growth is up to around six per cent,” he said. Commercial vehicles were the worst hit last fiscal with numbers plummeting by over 20 per cent while cars were down by nearly five per cent. Only two-wheeler managed to weather the storm and showed seven per cent growth.

Pawan Goenka, Executive Director, Mahindra & Mahindra said, “We in the auto industry are delighted at this proactive announcement by the Finance Minister. This will give the much needed boost to industry as we lead up to the festive season.”

What flummoxed the industry was the lacklustre response to the excise duty cuts announced in February. Nobody had a clue why this was happening and could only attribute it to the poor sentiment prevailing all around in terms of poor growth and dearth of jobs. Most industry captains believed that customers were perhaps looking for positive signals after the elections with a stronger government at the Centre.

The change in guard happened in May and the BJP is now at the helm of affairs. However, it remains to be seen if the auto sales numbers will start looking up. On the face of it, nothing much has changed and, on the contrary, a fresh set of problems has cropped up.  The first is poor rains which could stoke inflation and will hit demand for two-wheelers and cars. This is only logical as households begin to grapple with the harsh reality of high food prices and keeping high-ticket expenditure in check.

The crisis in Iraq is also another big worry and the Government will be hoping that crude prices do not go out of control as they did in 2009 when they touched an all-time high of $150/barrel. Today, levels are in the $110-112/bbl range and things could get sticky if they increase to $120/bbl. If oil companies are compelled to increase prices of petrol and diesel as a result, this will impact demand in the auto sector.

For the moment, though, there is some cause for cheer with the industry getting a breather for the next six months. The Diwali season is traditionally a good time for sales and everyone will be hoping that the country gets good rains for the remainder of this year. The Budget, scheduled to be presented on July 10, is also expected to have good news for the manufacturing sector which will, likewise, do its bit in improving sentiment.

Published on June 25, 2014

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