Finance minister Arun Jaitley today announced an extension of the excise duty reduction for the automobile, consumer durables and capital goods sectors for a six-month period ending 31 December 2014.
In the interim budget presented in February, former finance minister P Chidambaram had reduced the excise duty on automobiles, mobile phones, electronic items, capital goods and soaps for a period ending 30 June.
Chidambaram had cut excise duty on commercial vehicles and two-wheelers to 8 per cent from 12 per cent and on SUV's to 24 per cent from 30 per cent. The excise duty on large and mid-segment cars was slashed to 24 per cent from 27 per cent.
Addressing the media, Jaitley said the revenue loss will be made up in the long run. He said the revenue loss is a small compared to the benefit to economy by the duty cut.
"Any loss from revenue can be made up in economy in long term. I hope economy benefits from extension of excise duty cuts," Jaitley said after making the announcement. "Considering the present situation in various sectors, the government today decided to extend the facility of this reduced excise duty to all those sections for a further period of six months, ie, they will continue till December 31, 2014," Jaitley said.
Jaitly's announcement spiked auto shares in the last 10 minutes of trade with Maruti and Bajaj Auto closing the day with near 3 per cent gains.
Car sales in India saw some gains after most of the car makers passed on the benefit of excise duty reduction to customers by cutting product prices.
Car sales in India fell for the second consecutive fiscal in 2013-14 with a drop of 4.65 per cent to 17,86,899 units against 18,74,055 units sold in the previous fiscal.
In the 2012-13, car sales in India fell 6.69 per cent, which was the first decline in a decade.
The Narendra Modi government is likely to unveil a range of measures in its first budget, expected to be announced next month, to revive manufacturing and create more jobs as it looks to put the economy back on the high-growth path.