Ford India reconsiders investment plans in India in light of excise duty hike

Saturday 09 June 2012, 01:40 AM by

Ford India hinted that it may cast a shade on its future investments planned for the country if the government decides to hike the tax on the diesel vehicles. An investment worth USD 1 billion in its manufacturing plan at Sanand, Gujarat and USD 72 million to support diesel powertrain production was announced by Ford in 2011. However, in light of the latest development by the government, it feels the need to re-consider this investment before actually investing.

Michael Boneham, President and Managing Director, Ford India, "Given the current market situation, any additional tax on diesel vehicles will have a negative impact...Action like this creates uncertainty on future investments.” On being probed about duty hike impacting the investments he denied saying that it would not affect but company will asses the current investments. These investments were made based on certain assumptions in light of market conditions. He hinted that company may reconsider the decision to increase the capacity if the conditions fluctuate.

With its new facility at Sanand, Ford India had planned to create 5,000 strength employments with production of 2.40 lac cars and 2.7 lac powertrains every year in the beginning. At its Chennai manufacturing plant, car maker was expecting to increase the production by 80,000 powertrains to 3.30 lac units every year with the aid of USD 72 million investments. Boneham said, "I would have to go back (to the headquarters) to explain these investments", even though the car maker is planning to stay in India for a long run. According to him, the hike in excise duty will further hurt the car market which is already limping under the weight of low sales volume of petrol cars.

He added, "There is a perception that there is a long waiting period for the diesel vehicles which is not the case any more. Except for one or two models, rest of the diesel vehicles are available readily. We are not fully utilising our capacity at this point of time."

As per him, the industry would not face any problems if the price of the diesel is hiked to match that of the international market price. However, increasing the tax on diesel vehicles would not account too much as it is a short term solution. In case the government is worried about subsidised fuel being used for personal consumption by car owners Ford suggested dual pricing of the fuel. It all now boils down to how the market shapes after government's decision regarding the excise duty hike.