Prices of automobiles and consumer durables are expected to go up in the New Year as the government has decided not to extend the excise duty reduction beyond 31 December as proposed in the union budget.
The move will help the government raise additional revenue in the remaining quarter of the current fiscal so as to reduce fiscal deficit, if not achieve the target of 4.1 per cent of GDP.
"The government is not extending the excise duty concessions on the auto sector and consumer durables," a senior finance ministry official said.
''The exchequer is losing over Rs700 crore per month on account of the excise relief to the auto sector while the sector has improved as per the November figures. It is in this context that the ministry is considering not extending the benefit,'' the official added.
The previous UPA government had cut excise duty on cars, SUVs and two-wheelers in the interim budget in February, in order to boost a slowing auto sector.
Excise duty was reduced to 24 per cent from 30 per cent in the case of SUVs, 20 per cent for mid-sized car from 24 per cent and 24 per cent for large cars from 27 per cent earlier.
Subsequently, in June, the new government led by Narendra Modi extended the excise duty concession by six months to 31 December.
While the government is short of finances, the auto industry has shown growth of 10.01 per cent in April-November this fiscal, selling around 13.3 million units as against 12.1 million units in the year-ago period.
After declining for two months in a row, car sales in India rose by 9.5 per cent in November on the back of continued excise duty relief and lower fuel prices.
Domestic car sales in November stood at 1,56,445 units, up 9.52 per cent compared to the 1,42,849 units sold in the comparable month of 2013, according to the data released by Society of Indian Automobile Manufacturers (SIAM).
Car makers have been asking the government to extend excise duty relief, saying removal of this incentive could push the industry into a negative territory.
The central government's tax collection from excise duty contracted 0.2 per cent during the April-November period. The growth in the excise duty is against the asking rate of 21.8 per cent as per the budget 2014-15. The mid-year economic review has projected a revenue shortfall of Rs1,05,000 crore.
Finance minister Arun Jaitley had met top officials from the Central Board of Excise and Customs (CBEC) last month to assess the situation and work out strategies to meet the budgetary target.