More tax on diesel vehicles is regressive

The automobile industry represents the pulse of the nation. Reflecting its true potential, India today stands firm as one of the leading automobile markets in the world. Not many contest analysts when they predict India to be the No. 3 auto market by 2020 after China and the US.

Not only is the world bullish in its outlook on the Indian automotive industry, it also is predicting investment worth $30-40 billion along with creation of 3-5 lakh jobs in the time to come.

At Ford, we expect the automobile industry in India to grow to five million vehicles by 2015, and nine million by 2020. With an expected 325 million Indians in the age group of 20-35 by end of this decade, India offers phenomenal opportunities with new emerging young India consumers.

As an industry, 2011 was definitely a year in which a slowing global economy, coupled with rise in interest rates and fuel prices, resulted in a decline in consumer confidence and car sales. As a long-term partner in India's automobile journey, we expect these trends to be cyclical and look to the Union Budget 2012 to help in the creation of a growth-conducive environment for the Indian automotive industry.

Long-term vision

Given the promise of the market, we expect the Government to support the industry with long-term vision rather than falling prey to cyclical trends and ensure that the industry grows in the right direction. With the Government getting ready with the Budget, imposition of an additional duty on diesel vehicles has been demanded by some quarters. In contrast, we believe that it will only lead to a de-growth impact on the industry and should be avoided on account of it being regressive. According to Society of Indian Automobile Manufacturers (SIAM), any move to impose additional duties on diesel vehicles will “stigmatise” diesel technology which will be very unfair to the sector. Out of a total 61.68 million tonnes of diesel consumed in India across various sectors during 2010-11, diesel personal cars consumed only 1.03 per cent.

Circling the sector back on growth path after facing a slowdown in sales during the year 2011, we as part of the Indian industry expect the Government to continue with the current duty excise regime in order to enable sales to pick up momentum.

The removal of the additional excise duty of Rs 15,000 will also help the industry in the long run. If the Government is planning to encourage and incentivise investment in hybrid and electric cars, these vehicles need to be free from excise duty.

Additionally, increasing fuel costs, interest rates and input costs are some of the impediments to the sector's growth. We are looking forward to a Budget that would eliminate cascading tax impacts and pave way for the Goods and Service Tax (GST) to replace the multi-level and complex indirect tax structure in India and bring simplicity to the tax system.

The automotive industry has emerged as a key contributor to the Indian economy and remains one of the highest revenue-earning industries in India.

It has an annual contribution of 4 per cent to the GDP and also accounting for about 5 per cent of the total industrial output, this segment clearly stands out as a significant contributor to the economic growth, providing direct and indirect employment to a lot of people.

Given the importance, apart from maintaining the same excise duty rates, the budget can also help the manufacturers, especially SMEs to improve their profitability with a reduction of excise duty on raw steel. With steel prices going down, the industry will benefit from strengthening margin lines as it will become cheaper to source finished steel from tier-II and III suppliers.

With the growth of the passenger car industry, users are going to consume more fuel. There's a need for an investment-supportive and transparent Budget. The Government should get aggressive with ports, roads, multi-faceted creative transport solutions – metro rail in many Tier-I cities such as Delhi, Chennai are positive – and we need more of this.

Infrastructure development

Improvement in infrastructure along with the trend amongst Indian families to travel together is bound to help the automotive sector. It is, therefore, imperative to have significant investment in building infrastructure as well as consumer confidence through the budget.

We believe it is important for the Government to support this industry to grow and contribute further, by implementing long-term infrastructure projects.

The consumer confidence also needs to be elevated through control of inflation, which the Government, the Prime Minister and the Finance Minister have already been working towards.

Finally, growth can be achieved through confidence in the economy, GDP at levels of 7.5 per cent and above all support to aspirations of all levels of society. I look forward to a transparent, growth oriented and industry supporting budget.

(The author is President and Managing Director, Ford India)

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