Motown doesn't want heavy duty stuff

What last Budget brought: after a dollop of sops in 2001 — when special additional duty fell from 24% to 16% reducing the total excise from 40 to 32% — Budget '02 was a bit of a dampener. It left excise totally untouched though peak customs duty fell from 35% to 30% (the year before, the 10% surcharge on peak import duty was abolished. Although domestic lobbying later prompted the government to raise CBU duties to 60%). Motown's biggest sops were depreciation benefits for capacity expansion and the RBI permission to prepay ECBs and export earnings. After a bland Budget last year, the auto industry expects some big-ticket sops this time round. This isn't surprising given the general duty direction the Kelkar Committee offered. It suggested the 16% special excise duty be phased out over the next four years and fixed car excise at 20%. Currently cars attract 32% excise duty (16% SED and another 16% excise). Aditya Vij, managing director, General Motors India, says: None of the manufacturers are making any money and the industry has been flat for the past three years. Since we are in the throes of growth, if the government wants to spur demand, an excise cut is the right way and this is the right time. He may have a point there. Car demand has registered a decent growth throughout the fiscal and the industry expects the segment to end the year with around 8% growth. Of course, last time the excise duty fell from 40% to 32% and carmakers first dropped and then raised the prices. The devil there, says Vij, is a combination of margin and input cost pressure. Devaluation in currencies and rising input costs force carmakers to increase prices annually, he says. That plus the fact they don't make money means cost pressures on auto companies are higher than the inflation rate. When inflation was 6% our recovery was 3-3.5% so we tend to recover only 60% of our inflation costs, Vij says. Which is why Motown hopes the excise cut will be big enough to make a difference. Jagdish Khattar, managing director, Maruti Udyog, says: The three-point recipe to boost growth includes lower interest rates, investment in road infrastructure and tariff rationalisation. There's been work on the first two so we need duty rationalisation to complete the loop. But a minor step-by-step revision won't help because everyone is already offering 8-10% discounts. Indeed the Society of Indian Automobile Manufacturers (SIAM) has recommended that car excise be slashed to 24% this year and 16% next year in keeping with the FM's previous Budget promise of a single Cenvat in two years. Alan Durante, president, automotive sector, M&M, says: Even in last year's Budget, it was mentioned that excise would move towards a single rate. Hence some reduction is both expected and overdue. This will have a positive impact on demand growth. But excise alone may not be the recipe for a demand spurt. A better way, says BVR Subbu, president, Hyundai Motor India, is to boost disposable income. Greater pre-emption of earnings of the household sector, particularly the salaried class, leads to greater disposable income, which impacts disposable spending, he says. So the cost of ownership should come down through tax deduction on the entire amount payable as interest and depreciation even for salaried employees. As for customs duty, it has been reduced twice by 5% each and the government has announced that it intends to bring it down to Asean levels of 20% (Kelkar recommendations peg the date at fiscal 04-05). But industry, particularly MNCs, are more concerned about the completely built unit slab, which was revised to 60% in '01 taking the total effective duty package to around 120%. The argument here is that CBU business caters to niche products which don't clash with locally produced volume models, says Vij. Fears of an import flood is unfounded because even CBU programmes are expensive due to validation, homologation and adaptation costs.

Motown doesn't want heavy duty stuff

What last Budget brought: after a dollop of sops in 2001 — when special additional duty fell from 24% to 16% reducing the total excise from 40 to 32% — Budget '02 was a bit of a dampener.

More from our Partners

Popular Categories

Hot on Web

In Case you missed it

Top Searched Companies

Latest News

Download ET APP

Follow us on

become a member