It is a little over two months since P Chidambaram, Finance Minister, announced excise duty cuts for the auto sector in the interim Budget. Yet, to the surprise of most manufacturers, customers are just not biting the bait.

“We are puzzled and have no idea why this is happening. Our only guess is that it is a matter of sentiment and people may start buying vehicles when the new Government is in place next month,” a top auto CEO said.

Background The interim Budget slashed excise duty on small cars and two-wheelers from 12 to eight per cent and on large cars from 27 to 24 per cent. For mid-sized cars, duties were down from 24 to 20 per cent while SUVs saw a cut from 30 to 24 per cent. These lower duties are in force till the end of June.

The auto industry is now hoping that the new Government keeps the levels unchanged at least till the next Budget due in end-February 2015. “We are optimistic that customers will begin queuing up in dealerships from June. Another upward revision in excise duties will only stop this momentum,” the CEO added.

In 2009, Pranab Mukherjee, then Finance Minister, had carried out a similar exercise in slashing excise duties during the global slowdown. This turned out to be the best antidote for the auto sector and vehicle sales soared.

This time around, the muted reaction to the excise cuts is perhaps symptomatic of a more profound slowdown in the market. On the contrary, if it is just a case of deferred buying till the election results are announced, the industry would be a lot more relieved.

The next few months will provide the answer.

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