Budget 2012: Automobile manufacturers unhappy with the increase in excise duty

Monday 19 March 2012, 01:00 AM by

Automobile manufacturers in India were relieved after the budget did not increase taxes on diesel-run vehicles and also retained a considerable amount of subsidy on the fuel. However, the hike in excise duty was disapproved by the manufacturers as it will lead to a rise in the prices of automobiles.

If the diesel cars were made costlier it would have certainly affected the diesel segment which was responsible for improving automobile sales after slow demand due to high petrol prices and interest rates. Vineet Hetamsaria, Auto Analyst, PINC (Pioneer Investcorp) Research, Mumbai, said “This budget was very, very good for the auto industry, everyone was expecting taxes, and they didn't come.”

The shares of Maruti Suzuki (MRTI.NS), India’s leading car manufacturer, have touched the highest since January 2011. Mahindra and Mahindra that manufactures only diesel vehicles recorded an increase in its shares by 6.1 per cent. The shares of Tata Motors also increased by 2.6 per cent and became the highest ever achieved by the company, after the budget 2012-13 was announced. However, the shares dropped by 1.3 per cent at the end of the day due to the hike in excise duty. The prices of both commercial and passenger automobiles will be increased by Tata Motors according to the hike in the excise duty, immediately.

Pranab Mukherjee, Finance Minister, in his budget 2012-13 speech said that taxes on cars with 22 per cent excise duty will increase to 24 per cent. However, cars that have taxes of 22 per cent plus Rs. 15,000 will be levied 27 per cent excise duty.

Ford India head has reportedly said that the company will hike the price of its vehicles because of the increase in the excise duty. He has disapproved of the budget 2012-13 move towards the automobile industry.

Michael Boneham, President, Ford India, said “The announcement of a 2 percent increase in excise duty is disappointing and not favourable towards the auto industry.” He further added “This will lead to increase in prices of our products and will have negative impact on consumer confidence.”

Even General Motors and Maruti Suzuki executives have revealed that the prices of the cars will rise. As per analysts the price hike is likely to be around 1 to 2 per cent only.

Pranab Mukherjee also made announcements regarding an increase in the import duty of Completely Built Units (CBUs) of Sports Utility Vehicles (SUVs) and Multi Utility Vehicles (MUVs) that were priced more than 40,000 U.S. Dollars. However, this decision has affected Mahindra & Mahindra positively as it occupies a large of the SUV segment. The Mahindra shares at the end of the day were up 3.1 per cent at Rs. 677.95. Maruti Suzuki shares ended at Rs. 1,374.35 and were up 0.6 per cent.

The sales of diesel cars have jumped to 40 per cent of the new purchases in the country. Diesel car sales have drastically improved in comparison to past few years when the sales used to be below 20 per cent. Now diesel cars such as Maruti Suzuki’s hatchback Swift have a waiting period of more than six months.