The auto industry is naturally pleased that the Government has extended the excise duty cuts to December 31 this year. These were to be in force till June 30 and were first announced by the preceding UPA regime in its Interim Budget of February.
Excise duty on SUVs and large cars had been slashed to 24 per cent (from 30 and 27 per cent) and to 20 (24) per cent for mid-size cars. For commercial vehicles, small cars and two-wheelers, the duties were reduced to eight from 12 per cent.
Yet, there were no takers despite these generous cuts and automakers were completely puzzled by the tepid response in the market. They reasoned that this was perhaps due to poor sentiment and that customers would bite the bait once a new Government was in place at the Centre. The harsh reality, though, was that GDP growth was languishing below five per cent and jobs had virtually dried up in the market.
One part of the wish-list is in place with a strong Government at the centre without the compulsions of coalition politics, largely perceived to be the bane of the UPA-2. The bigger problems are still around though in terms of poor growth and a somnambulistic job market. Worse, disturbing news is coming in on the delayed monsoons which could stoke inflation and affect demand for two-wheelers and cars in rural India.
The other area of concern is the ongoing crisis in Iraq which could play havoc with crude prices. Should this happen and crude touches levels of $120/barrel, the Government will have no choice but to hike prices of petrol and diesel. This could prove to be a deterrent for those buyers queuing up to buy cars.
Perhaps, things may not be as bad eventually. Heavy rains may just make up for the deficiency in June and all could end peacefully in Iraq too. Diwali may then end up being the bonanza month that the industry has been waiting for after a two-year slump.