Indian Automobile Industry is dissatisfied with the Union Budget presented by Finance Minister P Chidambaram. According to the Experts of Automobile Industry, this budget has nothing to do with the problems faced by the Industry at present, viz. decrease in demand, rising fuel prices and poor sentiment, however it surely increased the tax burden which would result in further surge in demand. Below we reproduce an article from experts at Team BHP, India’s leading Automobile Website , which analyses the impact on Automobile Sector.
Unfortunate that our auto industry receives such treatment from the Center. The sector greatly contributes to the Indian economy by way of taxes, investment & employment creation. In the recent past, car companies have announced putting off their expansion & investment plans. The situation is unlikely to change in the near future.
Main Talking Points of the Budget 2013:
- The FM has proposed that the excise duty on SUVs be hiked from 27 to 30%. There is no official definition of an SUV to separate it from MUVs. Toyota India has confirmed that the excise duty hike applies to all UVs (i.e. SUVs & MUVs, both). Ironically, the UV segment is the only one that has been experiencing a growth phase in India. Cars like the Toyota Innova, Mahindra Scorpio & Tata Safari are sure to suffer from price hikes of about Rs. 25,000 – 30,000. Interestingly, UVs registered as taxis will be exempted from the excise hike.
On a positive note, compact SUVs (4 meters in length and with 1.2L petrol or 1.5L diesel engines) remain at the excise duty slab of 12% only. The Ford EcoSport & Mahindra Quanto just heaved a sigh of relief! The Renault Duster also appears to be in the safe zone. Although it runs over 4 meters in length, the 1.5L diesel engine has always made it attract an excise duty of 24%.
- High-end customers for imported luxury cars will feel the pinch of the FM’s decision to increase the duty on CBU cars to 100 % (up from 75%). Here is an interesting post by BHPian evo on how it will affect the actual pricing of CBUs. Team-BHP welcomes this move as higher import duties will force more manufacturers to invest in local assembly to remain price competitive.
- The duty on high capacity motorcycles (800cc or more) has been increased to 75% (from the existing 60%).
- Subsidy benefits for electric cars remain in place till 31st March 2015, something that will help the cause of the soon-to-be-launched Mahindra Reva e2o.
- The duty on second hand vehicles has been raised to 125% (from 100%). The Indian government only allows the import of right-hand-drive used cars that are up to 3 years old.
- All those who like nothing better than to hit the road will welcome the budget proposal to set up an independent regulatory authority to address bottlenecks and speed up 3,000 kms of stalled road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh.
- Motor Insurance found a mention in the budget. Public sector general insurance companies will now organise “adalats” to settle claims. More than 10 lakh third party motor claims are pending before Tribunals / Courts in India. What is regrettable however, was the lack of a single reference to the allocation of funds for improving road safety. India has the dubious distinction of the highest absolute number of recorded road deaths.
- For many of us who travel by bus, the decision to continue the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in the 12th Plan is a welcome one. The allocation for JNNURM is proposed to go up to Rs 14,873 crore from the Rs 7,383 crore provided this year. A significant portion of the allocated budget will support the purchase of up to 10,000 buses. Tata Motors & Ashok Leyland stand to benefit from this allocation.
Industry Reactions:
Lowell Paddock, President & Managing Director, General Motors India:
“As far as the automotive industry is concerned, the budget did not meet the expectations. We were expecting the roll back of the excise duty imposed last year. Instead there is an increase of 3 per cent excise duty on SUVs and there is also a hike in customs duty of 25% on high end imported vehicles. These hikes are not on the expected lines and will impact the sale of SUVs. Having said this, we have to see the fine print to understand the clear definition of SUVs.  Some of the other announcements made by the finance minister for manufacturing, R&D activities, regulatory authority to monitor road projects, focus on skill development etc should enhance the competitiveness of the Indian industry.”
Joginder Singh, President and Managing Director, Ford India:
“We welcome the focus on infrastructure development, social benefits for inclusive and sustainable growth in the country. The investment allowance to boost the manufacturing sector is a positive move. The automobile industry is a significant contributor to India’s economy and future growth potential. We are disappointed that there is very little in the budget that will help boost consumer confidence and revive growth. It is a missed opportunity to introduce measures that would have revived industrial growth significantly. As we all know the automotive industry has been going through very challenging times, we are disappointed with the increase in the excise duty for SUVs.â€
Mr. Michael Perschke, Head, Audi India gives the budget a rating of 3/10:
“Increase in Custom Duty for imported cars and Excise Duty on SUVs is very surprising. It will severely impact the auto industry and its growth. We will have to seriously evaluate the impact of this hike on our prices and, have no choice other than to pass on the increase to the customer. Overall it will have an adverse impact on automobile industry which is already going through a slowdown and specifically affect demand including that of SUVs.
We are happy to note that there is a renewed focus on infrastructure especially roads. The proposed regulatory authority on road construction will hopefully fuel better infrastructure and speed up developments.”
The Article originally appeared  here on the Team-BHP Website