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Post Budget Effects on the Auto Sector

March 16, 2012, 05:48 PM IST by Rachit Hirani
Post Budget Effects on the Auto Sector

The 2012 budget didn't seem to have impressed the automotive industry, as it didn’t heal any of existing wounds. The previous year’s sales had already been dented by the sky rocketing fuel prices and revised interest rates; and now the burden increases with the hike in excise by 2 percent. This means all cars will see a rise in their final cost. The passenger car segment growth for this financial year has been less than 15 percent. This increment indicates possibly a further reduction in the sales figure. 

The worst-to-be affected segment is that of the luxury car market. Pundits had predicted the excise on luxury cars to drop down from 22 to 16 percent. Instead, the finance minister announced a jump to 24%. To spoil the party further, import duty on CKD vehicles worth or above Rs 20lakh shall be bumped to 75% instead of the current 50%. So, now the luxury car segment, which has been growing by 50% Y-o-Y could see a slowdown as well.

Speaking on this occasion was Mr Michael Boneham - President and MD Ford India, who quoted, “We are pleased with the Government’s decision about not levying extra tax on diesel vehicles as any additional tax would have been a regressive step. However the announcement of a 2 per cent increase in excise duty is disappointing and not favorable towards the auto industry. This will lead to increase in prices of our products and will have negative impact on consumer confidence. The increase in excise duty for large cars up to 27% (advelorum) is again not favorable though we are assessing its full impact on our product portfolio’’  

Mr Michael Perschke, Head Audi India also commented, “The increase in excise and customs duty on large cars in this budget is very surprising. This increase comes at a time when the Indian automotive industry was finding favor with customers looking for better and efficient cars.  We may now need to re-evaluate our pricing strategy in India. However we do welcome the positive announcements on increase of investments in infrastructure and encouragement to private investment which should drive higher growth in the economy. The revision and reduction of personal tax slabs  will result in increased savings and possibly higher spends.”

Dr Pawan Goenka, President, Automotive and Farm Equipment Sector, Mahindra & Mahindra quoted, "Specific to automotive industry, the industry is relieved that the FM did not take any retrograde step like imposing a tax on diesel vehicles. The excise duty hike was in a way expected and we will have to pass on the price increase to the consumer. However, with all the surcharges and special levies, the top excise duty rate is as high of 29%. I believe this is simply too high!"


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