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Excise Duty reduction to boost demand for automobiles in India

Snapshot: Prices of automobiles including small cars, sports utility vehicles and two-wheelers are all set to come down, with the reduction in excise duties in this year's interim Budget

The domestic automotive industry can now heave a collective sigh of relief, as Finance Minister P. Chidambaram has cut the excise duty for small cars/commercial vehicles/two-wheelers from 12 per cent to 8 per cent and on SUVs from 30 per cent to 24 per cent. Excise duty on large cars will now be 24 per cent compared with 27 per cent earlier, while the duty on mid-sized cars will go down to 20 per cent from 24 per cent previously.

The mood of many company officials is upbeat and key players like Mahindra, Tata and Maruti are all looking to pass on the benefits of this excise cut onto consumers. A lot of this credit goes to Heavy Industries’ Minister Praful Patel, who had written to the Finance Ministry voicing his concern for a slowly degenerating auto industry in India, being stifled with very high excise and import duties. 

Last time round, then Finance Minister Pranab Mukherjee had cut excise from 14 to 10 per cent, a move hailed by the industry and bemoaned by environmental agencies. Car sales have been constantly falling. According to data given out by Society of Indian Automobile Manufacturers (SIAM), domestic car sales this year round declined to 1.69 lac units compared to 1.73 lac in the same period last year. 

According to Vikram Kirloskar, President, SIAM, “it is a welcome announcement made by the Finance Minister in the Vote on Account presented today. SIAM would like to thank the Finance Minister for recognizing the need for a more moderate tax structure for the automotive industry.” SIAM on its part feels that sales might go up slightly on this account. According to Dr. Wilfried Aulbur, Managing Partner, Roland Berger Strategy Consultants, “the reduction in excise duty gives the automotive industry a much needed relief after many quarters of demand side challenges.”

What is depressing to note here however is that there have been no import duty cuts on luxury vehicles or the very important hybrid/electric segment. These import duty cuts are being blocked by domestic auto manufacturers because they are scared of losing their market share due to the current quality of domestically manufactured cars.

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