What Union Budget 2011 brings for Auto Sector

Tuesday 01 March 2011, 00:00 AM by Vikas Yogi

Amidst speculations in the market, the Indian government on Monday announced its Union Budget for the coming financial year. The key announcement for the auto sector was that the standard rates of excise duty will be maintained at 10%. While presenting the Union Budget in the Lok Sabha, finance minister Pranab Mukherjee made this announcement. If the excise duty would have been hiked, it would have directly impacted the product prices in the auto sector, decreasing the volumes. The increased excise duties would have brought negative implications for the auto sector.

The government has also offered higher allocation under the NREGA and infrastructure schemes thus allotting increased funds to the infrastructure development. The development of infrastructure is a key factor in the growth of auto sector as it plays a crucial role in boosting demand for automobiles. Moreover, the commercial vehicle segment will be benefited the most through the development of infrastructure in the country. The move will prove beneficial for major commercial vehicle makers in the country including the likes of Tata Motors and Ashok Leyland.

In a bid to offer a relief to the common man, the finance minister offered a revised income tax slab, by the minimum tax limit by Rs 20,000. The move is expected to boost the demand of Two-wheelers and small cars as it increases the disposable income of the entry level buyers in the country. The companies that will be most benefited through this move include Hero Honda, Bajaj Auto, TVS and Maruti.

Moreover, the government has proposed Rapid Implementation of GST(Goods and Services Tax). The implementation of GST would result in removal of indirect taxes and create a single point of taxation, which will in turn result in decreased price for Auto & Auto Components.

Hybrid vehicles would cost less in the coming months as the government has waived off duty on imports of specified parts along with reducing the tax on their domestic manufacturing.

Last year, the government had partially rolled-back the stimulus package by hiking the excise duty by 10 percent. However, as the industry has started showing signs of slowdowns this year around due to strong base of last year, the government has maintained the same rate. Moreover, the skyrocketing prices of input materials and rising fuel prices have already raised concerns of major auto makers in the country.

The Indian auto sector is expected to grow at 10-12% in calendar year 2011 as against 31% in last calendar year.