Mumbai & Chennai:

The previous year's budget left excise totally untouched although peak customs fell from a high 35 per cent to 30 (although domestic lobbying later prompted the government to raise duties of completely built units [CBUs] to 60 per cent).

The high expectations this year were mostly on account of the Kelkar committee report, which set the general direction of the duties. The committee had suggested the 16-per cent special excise duty on cars be phased out over the next four years and the fixed total car excise at 20 per cent.

Budget 2002-03 had fixed a 32-per cent excise duty (16 per cent special excise duty and another 16 per cent for excise) on passenger cars. The auto industry's main grouse in the past year has been that car manufacturers are not able to achieve sufficient revenues to achieve substantial growth. For the past three years the auto industry has not been seeing much growth rate.

The general expectation in the sector has been a reduction in excise duties from 32 per cent to 24 per cent, which will lead to lowered car prices and increase demand, leading to growth in the industry.

Aditya Vij, managing director, General Motors India, earlier speaking on the expectations of the auto industry from the budget, said an excise cut at this time when the economy is in the throes of growth would lead to a fall in automobile prices. ''It would stimulate demand, leading to growth of the industry, and this is the time to do it.''

Sure enough, a few hours post the budget announcement, carmakers were contemplating price reductions. Maruti Udyog managing director Jagdish Khattar says his company is contemplating reducing prices of all Maruti models by Rs 10,000 to Rs 20,000, while others are getting into the same mode.

The Society of Indian Automobile Manufacturers (SIAM), prior to the budget, had recommended car excise be slashed to 24 per cent in 2003-04 and 16 per cent in 2004-05.

But the experience of the 2001 budget should be kept in mind before coming to final conclusions on the issue. In the 2001 budget, when excise duty was reduced from 40 per cent to 32 per cent, carmakers first dropped car prices only to raise them promptly. They later put the blame on devaluation in currencies and rising costs of manufacture.

Reductions in customs duty to benefit MNCs
Apart from excise duty cuts, rationalisation of the peak customs duty from 30 per cent to 25 per cent should lead to price reductions of cars and multi-utility vehicles brought in through the CBU car imports route. That is unless domestic pressures again succeed altering rates on car imports as Budget 2001.

Multinational carmakers' chief concern is about the CBU slab, which was revised to 60 per cent in 2001 due to domestic pressures, taking the total effective duty package to around 120 per cent.

The customs duty has been reduced twice by 5 per cent each and the government has announced that it intends to bring it down to Asean levels of 20 per cent (Kelkar recommendations put the date at fiscal 2004-05).

MNCs argument here is that the CBU business caters to ''niche products which do not clash with locally produced volume models.'' MNCs say fears of a flood of CBU imports are unfounded because even CBU programmes are expensive due to validation, homologation and adaptation costs.

SIAM chairman R Seshasayee, talking about the reduction of peak customs duty slated to eventually reduce to 20 per cent by 2004-05, says the reduction of the customs duty should coincide with tax and labour reforms. ''There cannot be talk about the customs duty in isolation citing that the Indian industry should be given a level-playing field.''

Investment in infrastructure
Perhaps the best part of Budget 2003-04 is its emphasis on infrastructure development. The outlay of Rs 40,000 crore on development of roads exclusive of the Golden Quadrangle Project will benefit nearly every sector of the economy, particularly the automotive sector.

Khattar, earlier speaking on the expectations of the auto industry from the budget, said: ''The three-point recipe to boost growth of the industry includes lower interest rates, investment in road infrastructure and tariff rationalisation.''

In the past five years the rapid growth of the auto industry has brought into sharp focus the glaring deficiencies in road infrastructure in the country. Indeed, one has to have good roads to ply the ever-increasing number of cars in the country.

Mixed reactions from auto industry
The auto industry's reaction to Singh's first budget ranges between disappointment and happiness (See reactions). While the passenger car industry is happy with the reduction in excise duty to 24 per cent, two-wheeler players are not very happy.

Expressing her disappointment, Kinetic Engineering joint managing director Sulajja Firodia Motwani says: ''The two-wheeler industry, one of the largest and most promising sectors in India, has been given nothing to cheer about. In fact, it has been burdened with an unjustifiable 1-per cent national calamity duty.

''On the other hand, the surcharge on corporate income tax has been reduced from 5 per cent to 2.5 per cent. So what is the justification for the 1-per cent national calamity duty on two-wheelers and not other products like, say, four-wheelers?''

According to her, concessions similar to those given to IT, pharma and healthcare sectors should have been extended to the import of batteries, controls and electric motors for electric vehicles so that the two-wheeler industry can promote the sale of electric vehicles, which would have the beneficial effect of reducing pollution levels in the country.

The finance minister has announced excise duty reduction on the manufacture of electric cars, which in turn would benefit Reva Electric Car Company.

''The economy will not much see much impact from this budget. The reduction in import duty on raw materials will only serve to compensate an anticipated likely increase in worldwide prices of raw materials. It will not result in actual reduction in costs or benefit the commercial sector or economy as a whole,'' says an irked Motwani.

Says TVS Motor Company chairman and managing director Venu Srinivasan: ''The excise reduction on tyres and rationalisation of rates for heavy commercial vehicle companies if they get into body-building activities are welcome measures.''

If the railway budget made the commercial vehicles bit unhappy, the finance minister has given them renewed hopes what with the major road projects outlined by him.

Adds Volvo India managing director Ulf Nordqvist: ''The focus of the budget to introduce additional road projects and increase the investments in this sector is very welcome. Once these projects see the light of the day it will surely stimulate the commercial vehicle industry. However, this huge investment on new road infrastructure and their expected economic impact can be greatly discounted if we do not have the right vehicles to match them, specifically commercial vehicles.''

High performing multi-axle tractor-trailer vehicles (in the long-haul sector) will reduce fuel consumption and emissions in long-distance commercial transport when compared to the existing rigid trucks on the road. This is a globally accepted and tested concept. A switch to such vehicles can bring about as much as 50-per cent reduction in fuel consumption and 80 per cent in emissions.

''The budget could have also considered promoting modern buses as a way to promote tourism and to bring the cities of India closer,'' Nordqvist sums up.