The auto industry was hoping for excise duty reductions in the Budget. The Finance Minister, instead, slapped a higher levy on SUVs, while increasing customs duty on imported cars and 800cc plus motorcycles.
SUV manufacturers will now have to cough up 30 per cent excise duty, up from 27 per cent, while imported luxury cars will now involve 100 per cent import duty, against 75 per cent earlier. In the case of 800c plus bikes, the import duty has been hiked from 60 per cent to 75 per cent.
Just a year ago, Chidambaram’s predecessor, Pranab Mukherjee, had increased the import duty on cars to 75 per cent from 60 per cent. To companies like BMW, Audi and Daimler, local assembly is the best future option.
This is equally true for bike manufacturers like Harley Davidson and Honda which will have to import CKD (completely knocked down) kits for assembly. It is also a clear message from the Government that there is no question of cheap car imports from the EU in the event of a free trade agreement.
The bigger blow, though, is the decision to hike excise duty on SUVs. Critics have constantly maintained that this product segment is making the most of subsidised diesel. Now, with diesel prices on the route to deregulation, that argument just does not hold any water.
This, perhaps, explains why Chidambaram chose to cite another explanation that “SUVs occupy greater road and parking space and ought to bear a higher tax”.
This will be a drawback to Mahindra & Mahindra, Renault, Tata Motors and Toyota as well as new entrants like Ford. While Joginder Singh, President and Managing Director, Ford India, was disappointed with the hike, Sunil Rekhi, CFO, Renault Nissan India, said he did not expect a big impact in the SUV space as other budgetary announcements to boost investments would help the industry.
The Budget brought good news for electric cars where sops have been extended by two years. Bus-makers can also look forward to a brisk order book thanks to the Rs 14,873-crore outlay for the JNNURM (Jawaharlal Nehru National Urban Renewal Mission) project.
J.N. Amrolia, Director on the board of Ashok Leyland John Deere Construction Equipment Company, said the continuation of the JNNURM scheme in the 12th Plan would translate into bus orders for the beleaguered commercial vehicle industry.
Srivats Ram, Managing Director, Wheels India, agreed saying the JNNURM scheme was welcome news for the component industry.
“We hope the impact of the SUV excise hike is not so bad that it offsets the benefits of JNNURM,” he said.