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      Budget 2012 Update: Auto industry leaders speak about diesel tax ahead of Budget 2012

      CarTrade Editorial Team

      CarTrade Editorial Team

      Leading names from the automotive industry of India spoke about the importance of extending the deduction in taxes on Research and Development (R&D) as well as lower interest rates. 'What does India's auto sector need for a smoother ride?' was the topic of this debate, which was held in Chennai. Michael Boneham, MD of Ford India, and BVR Subbu, former President of Hyundai, stood on opposing sides when the government's policy of taxing diesel vehicles was discussed. The government's decision on this matter, which has become one of the biggest concerns for car makers, is yet to be announced.

      Subbu supported the tax on diesel-powered vehicles, saying "Most automotive manufacturers in this country have earned super normal profits on the diesel vehicle options, without a doubt." On the other hand, Boneham showed his support to the industry's stance on this tax. He commented, "With the growth of the passenger car industry, they are going to consume more fuel. India needs to import more oil. The key point is achieving security."

      Cars running on diesel deliver better mileage than those fuelled by petrol and due to increasing cost of the latter in India, the demand for diesel-powered vehicles is rising steadily. According to Srivats Ram, MD of Wheels India (a TVS group company), the fuel consumption rate will not be affected as the tax will be levied as monthly instalments over a span of 5 years. Ram also said, "Two wrongs don't make a right."

      As the fuel debate went on, Abdul Majeed, National Automotive Leader, Pricewaterhouse Coopers, who was the moderator for the day, brought up the topic of R&D in the auto industry. He questioned the panellists about their thoughts on the excise deduction that was given by the government on R&D, which expires this year.

      Sanjiv Khurana, CFO of Daimler India, states that he would prefer if the government renews the programme for another decade. According to him, companies of all sizes will get extra incentives. Furthermore, he said that he seeks more encouragement from the government with respect to the framework for the growth of R&D in the auto industry. Srivats Ram notified that parts make up over 2/3rd of a finished model and said that his industry had requested the government for setting up a technology development fund. This matter has already been discussed in front of the Planning Commission.

      The debate had been hosted in a bid to bring together the prominent names in the main sections of India's auto industry, namely Boneham (cars), Subbu (technology), Srivats Ram (components) and Khurana (commercial vehicles). Majeed had commenced the debate by questioning the speakers about the prospects of the industry and all had been mostly positive. Boneham had said that he expects the passenger vehicle industry to triple in terms of volumes as compared to 2011, with approximately 9 million units by 2020. He continued by stating: "There's a need for an investment-supportive and transparent Budget. The government should get aggressive in terms of infrastructure policies."

      In the first quarter of 2011, the industry had enjoyed 20 per cent growth in the sales of cars as well as commercial vehicles. However, the Indian auto sector has been suffering from loss in sales since then as the country is gearing up for an economic slowdown in 2013. The high interest rate on vehicles has also affected sales as most people opt for financing from banks while buying cars. The speakers were unsure if Reserve Bank of India (RBI) would lower rates in coming times considering that inflation has come down in recent times. Subbu said that if salaried individuals are able to set off depreciation on a passenger car, the demand for cars would not rely on interest rate cycle. Presently, salaried people do not have such an option.