Prices of cars are set to rise, in the range of Rs 2,000 on mass market vehicles, to over Rs 1 lakh on big diesel SUVs and sedans, as Finance Minister Arun Jaitley decided to levy ‘infrastructure cess’ of up to 4 per cent.

Stating that the pollution and traffic situation in Indian cities is a matter of concern, during his Budget speech on Monday, Jaitley told Parliament: “I propose to levy an infrastructure cess, of 1% on small petrol, LPG, CNG cars; 2.5% on diesel cars of certain capacity, and 4% on other higher engine capacity vehicles and SUVs.”

While the auto industry in general appreciated the Budget, the government’s move to levy infrastructure on cars derived mixed reactions, with most carmakers wanting the government to look at phasing out old vehicles.

Said SUV major Mahindra & Mahindra’s Executive Director Pawan Goenka, “The Budget places strong emphasis on agriculture, rural economy, infrastructure and social sector. This is what I was hoping for. The resurgence and thrust on the PPP in infrastructure is most welcome... On the face of it, imposing up to 4% cess for passenger vehicles is a concern for the auto industry. However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. It would have been good if some of the additional revenue from this cess was used to phase out older vehicles.”

“Some relief has been given on the corporate tax rates for some companies, however, an infrastructure cess of 1% on small petrol, CNG and LPG cars, 2.5% on diesel cars and 4% on higher engine capacity cars has been imposed, which will affect the consumption in  an already stressed environment,” Maruti Suzuki CFO Ajay Seth.

Toyota Kirloskar Motor Vice Chairman and Whole-Time Director Shekar Viswanathan said, “We would have expected some measures to promote alternate fuel technologies which would have helped the environment. We would encourage the government not to just think based on size of the vehicle, which has no relation to the technology. Taking older vehicles off the road should be a priority for the government.”

Referring to the infra cess, Renault India Operations Country CEO and MD Sumit Sawhney said, “The industry was hoping that the government should have taken progressive steps such as introducing a ‘scrappage incentive scheme’, to keep older cars off the roads, and would not have impacted the industry. The policy will benefit the environment, reduce fuel consumption and also propel further demand for greener and efficient vehicles.”

Nissan India Operations President Guillaume Sicard said that there is not much for the auto industry in this budget, adding, “Infrastructure cess increase up to 4% on passenger vehicles will definitely have an impact on prices. We do not foresee that to be a major burden for small car buyers, but the luxury cars and SUVs will feel the heat.”

Echoing the sentiment that the Budget will hit luxury cars, as much as it will affordable ones, Audi India Head Joe King said, “We are disappointed that the industry’s demand on reducing excise duty has not been addressed. On the contrary, infra cess on cars and SUVs has been added, which will further affect the price, and consequently, demand. Also, we need to evaluate the impact of extra tax levy of 1% on purchase of cars above Rs 10 Lakh.”