Industry expects excise duty reduction

A struggling auto sector is riding on hopes that many of its wishes, including a cut in excise duty, would be fulfilled in the coming Budget. The Indian auto industry, the sixth-largest motor vehicle producer globally, was impacted by weak economic conditions, increasing interest rates and rising fuel prices.

“The sector will be looking for three main indicators – announcements on excise duty, Goods and Services Tax (GST) and infrastructure spending – in the forthcoming budget,” says Pawan Goenka, Executive Director and President (Automotive and Farm Equipment Sectors), Mahindra & Mahindra.

Auto manufacturers sold 18,94,932 passenger cars in April-December, marking a meagre 3.67 per cent rise from the same period a year ago, according to data released by industry body Society of Indian Automobile Manufacturers. This year, however, started with a note of optimism for the sector.

“A reduction in excise duty rates from 12 per cent to 10 per cent for small cars, commercial vehicles, three- and two-wheelers, and from 25 per cent and 27 per cent to 22 per cent for large cars and utility vehicles, respectively, will help spur demand,” said General Motors India Vice-President P Balendran.

The excise duty cut, which was initially provided in February 2014 across all categories, was rolled back as of January 2015. This resulted in an increase in prices across categories by 4-6 per cent.

The sector is also keeping an eye for sops to infrastructure development.

“An increased spending in infrastructure development will create demand for commercial vehicles, which, in turn, shall also benefit the auto component industry,” said Nishant Arya, Executive Director, JBM Group.

A reduction of import duty on Butyl acrylate (used to make paints) to 7.5 per cent and a policy for hybrid are among other demands, said Sridhar V, Partner at Grant Thornton India.

According to Kumar Kandaswami, Senior Director at Deloitte in India, it would be good to see the Budget touching on private-public-partnership model for road construction and smart cities and policies that will result in more disposable income and sops for the mining sector.

Tyre sector

In the tyre sector, the industry has sought the removal of anti-dumping duties on the import of raw materials such as rubber chemicals (Butyl rubber) and carbon black. It has also sought levying of anti-dumping duties on imported Chinese tyres.

“The high import duty on rubber raw materials makes it difficult for the domestic tyre industry to compete against imported finished Chinese tyres, which are not subject to such high duty rates,” said Vinay Khattar, Associate Director and Head of Research at Edelweiss.

Further, Mahindra’s Goenka expects some support to come in for electric vehicles in this Budget. “That is necessary, too,” he added.

This article appeared in The Hindu Business Line on 23rd February, 2015.