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Budget implications for the auto sector news
Mohini Bhatnagar
29 February 2008

While the consumer goods sector will benefit from the Budget 2008 due to the raising of the tax exemption limit to Rs1.5 lakh from Rs1.1 lakh earlier the sectors that directly benefit from the Budget 2008 are the auto and pharma sector.

Clearly with the provisions for the auto sector of Budget 2008 the FM aims to boost sales of all small passenger vehicles - small cars and three-wheelers. In addition to this the provisions for the manufacturing sector in the Budget such as reduction in across the board excise duty to 14 per cent will benefit automobile sector in general.

The reduction of 4 per cent excise duty on small cars, two and three wheelers from 16 per cent to 12 per cent will provide cheer to small carmakers, two wheeler makers and bus makers.

The reduced duty applies to cars measuring less than four metres with petrol engines less than 1200cc and diesel engines less than 1500cc.

The provisions will benefit carmakers like Maruti Suzuki (Alto, WagonR, Zen Estilo), Tata Motors (Indica), Hyundai Motors (Santro, Getz, i10) and General  Motors (Spark)
According to a Hyundai official said the duty concession would enable the company to reduce the price of Santro by Rs 12,000 to 14,000, the i10 by Rs12,000-Rs15,000 and the Getz by Rs 14,000-16,000 on ex-showroom prices.

A General Motors spokesperson said that its small cars the Chevrolet Spark and Chevrolet U-VA, would see a drop in price ranging from Rs7,500-Rs14,000.

For two-  and three-wheeler makers Bajaj Auto, Hero Honda, TVS Motors and Kinetic Motor the Budget has come as a relief.

For Bajaj Auto it is a double bonanza especially as since it is the second largest player in the motorcycle market and is the biggest player in the three-wheeler market with its Chetak brand of three wheelers. This apart the company is planning to enter the small car market that will compete against the Nano.

However, the two-wheeler industry wish list was for excise duty on motorcycles to be cut to 8 per cent hence the 12 per cent duty may come as a dampener.

Tata Motors gains on two fronts: The duty cut on small cars will enable it cut the price of the Indica. The duty cut on bus chassis manufacture will be an additional boon from Tata Motors as well another bus maker Ashok Leyland.

While existing small car makers will benefit from Budget 2008 provisions carmakers like Renault Nissan, Volkswagen, Honda Motor and Bajaj Auto which intend to launch small cars in India will heave a sigh of relief at the continuation of policy.

With interest rates at a high of 12 per cent and more for the past year the car industry has been hurting. Car sales which grew at or above 20 per cent through 2003 to 2007 fell to single digits of 7 to 9 per cent in 2007. This year started on a bad note also as in January, domestic passenger car sales rose by 8.99 per cent to 1,13,899 units from 1,04,501 units in the same month last year according to the Society of Indian Automobile Manufacturers (SIAM).

It was even worse for two-wheeler makers. Along with high interest rates, the looming threat of the launch of the one lakh Nano, motorcycle sales in the country were badly mauled. Sales of bikes in January 2008 fell by 14.07 per cent at 4,81,267 units as against 5,60,056 units a year ago.

Total two-wheeler sales in January slipped by 10.96 per cent at 6,05,455 units as compared to 6,80,014 units in the same month last year.

Commercial vehicle sales during January 2008 also fell by 0.98 per cent at 46,788 units from 47,251 units for the year-ago period and the provisions for manufacture of bus chassis in the current budget seem to have come at the right time.

This apart the finance minister has provided relief to auto manufacturers of hybrid cars by reducing the excise duty on them from 24 per cent to 14 per cent. Hybrid cars that use a combination of electric motors with gasoline/diesel engines to enhance efficiency and reduce pollution are currently not on sale in India and the duty cut at present has no meaning.

However, from April 1, 2008, manufacturers like Honda Siel, Toyota Kirloskar India and Mahindra & Mahindra plan to launch hybrid cars. These include the Honda Civic hybrid and the Mahindra Scorpio hybrid, while Toyota has showcased its Prius in India.

Both the Prius and the Civic will enter through the import route and will not be impacted much by the duty cut, while M&M will benefit as it is developing the hybrid Scorpio locally.

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Budget implications for the auto sector