Union Budget 2013: Auto Industry seeks cut in excise duty to boost sentiments


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Union Budget 2013: Auto Industry seeks cut in excise duty to boost sentiments

Last Updated: Wednesday, February 27, 2013, 21:04
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Siddharth Tak and Rohit Joshi/ZRG/

2012-13 has been a challenging fiscal for the Indian auto sector as it remained engulfed by the negative sentiments. Major negatives were the slowdown of GDP growth rate, rising fuel prices, and firm interest rates. Taking into account the current macro environment, experts believe that either excise duty would be reduced or status quo would be maintained in the upcoming budget. However, the sector may stand to benefit from indirect sops such as higher outlay for the rural sector and increased budgetary allocation for infrastructure spending.

During April 2012 – January 2013 period, the domestic auto industry growth has retarded to 4.66 per cent levels when compared to corresponding period last year. Furthermore, during the period under review, the medium and heavy commercial vehicle (M&HCVs) and passenger car segments have registered a negative growth of nearly 21 per cent and 2 per cent respectively.

Commenting on the above trend and ways to revive the auto sector, Subrata Ray, senior vice-president for corporate ratings at ICRA, said, “With demand for small cars and M&HCVs being hurt the most during the current fiscal (2012-13), we believe any reduction in excise duty will be a positive as Original Equipment Manufacturers (OEMs) are likely to pass on such benefits to consumers to revive demand. The industry expects that excise duty should be reduced from 12 per cent (at present) to 10 per cent during the upcoming budget. Further, as demand for passenger cars over the past 12-18 months has been supported by increasing preference for diesel cars, any significant one-time tax on diesel vehicles would be a negative and may also impact timeline of investments planned by OEMs to localize diesel power trains.”

“Apart from a possible reduction in excise duty, the industry's expectation list also includes a) avoidance on any sort of incremental tax on diesel vehicles (given the fact that diesel prices have increased off-late), b) possible continuation of investments under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) and c) higher allocation towards road & highway infrastructure improvement,” he added.

In sync with Ray , Sugato Sen, deputy director general , SIAM (Society of Indian Automobile Manufacturers),opined, “We are hoping that government will allocate more funds to schemes like NREGA and JNNURM and if it happens then it will perk up auto sales in the rural India. SIAM has suggested that the government should reduce excise duty on cars other than small cars to 20 per cent and the duty on 10-13 seater vehicles should be at par with buses at 10 per cent. Furthermore, we have also recommended to reduce excise duty on auto vehicles and two wheelers to 10 per cent. Moreover, it has asked the government to provide concessions on identified parts of hybrid/electric vehicles.”

However, an auto analyst at a domestic brokerage firm argued, “Budget would be largely neutral for the auto sector. We are expecting that status quo would be maintained on excise duty front. The only negative could be imposition of additional duty on diesel vehicles. There is some possibility that government might increase allocation to schemes like JNNURM. However going forward auto sector could witness gradual recovery in FY14.”

First Published: Wednesday, February 27, 2013, 16:46


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