Indian auto industry in dilemma over excise duty

Good days for car buyers are yet to come! Vehicle prices are likely to increase from July 1 as excise duty cut, announced by the UPA government in the interim budget, is expiring on June 30, 2014. A few days back in order to bring the Indian economy back on track, government took a harsh decision to increase the railway tariff. So it is likely that the BJP lead NDA will retain the previous excise duty structure (prior to excise duty cut of Feb).

If excise duty benefit is pulled off, the prices of utility vehicles will increase by 6 per cent and bikes by 4.5-5.0 per cent. The Union budget is expected in the second week of July and if the government does not bring any circular or notice before June 30, the manufacturers will increase their prices.

In the financial year 2013-14, the Indian auto-sector witnessed a fall of 4.65 per cent to 17.87 million units in sales, while in 2012-13, the car market fell by 6.69 per cent. In order to boost vehicle sales, the past government reduced the excise cut.

Mayank Pareek, chief operating officer of marketing and sales at Maruti Suzuki India said,"We are still discussing it. The thing is that that when the excise duty came down, we immediately reduced the prices. So it's natural that if the excise duty goes up by reverting it to the pre-interim budget regime, then we will have no other option but to increase the price."

In the interim budget, Mr P. Chidambaram reduced the excise duty for SUVs, cars, bikes and scooters. Excise duty for small cars (under 4m), was brought down to 8 per cent instead of the former 12 per cent while in the SUV segment, the excise duty has been reduced from 30 per cent to 24 per cent. Excise duty on medium cars is also rolled down to 20 per cent from 24 per cent, while the larger cars attracted an excise duty of 24 per cent as compared with 27 per cent earlier.

Now as the date of expiry of interim budget is due on June 30, the Society of Indian Automobiles Manufacturers (SIAM) and the Federation of Automobile Dealers Association (FADA) are keeping their fingers crossed as the government is expected to increase the duty.

"We hope the notification comes before 30th June and if it doesn't, it will be a matter of confusion. If the notification comes and the excise duty is increased, then we will have no option but to increase the prices of vehicles," said  Jnaneswar Sen, senior vice president of marketing and sales at Honda Cars India