Car-makers to raise prices after excise duty hike

"The hike in excise duty by two percent on all car segments is on expected lines. This will result in a hike in the prices of cars," said the Society of Indian Automobile Manufacturers (SIAM) that  represents 44 leading vehicle and vehicular engine manufacturers in India.
"The hike in excise duty on cars is a major disappointment for the automobile industry as there was strong need to continue the stimulus to support the ongoing fragile recovery. This is sure to affect consumer sentiments when taken with the simultaneous hike in fuel prices as it will lead to an overall increase in motoring ownership costs," said Michael Boneham, president and managing director, Ford India.

India's largest car-maker, Maruti Suzuki India (MSI), said its cars would become dearer by two percent. "The hike in prices of cars is essential to offset the increase in excise duty announced by the finance minister (Pranab Mukherjee) in the budget," said MSI chairman R.C. Bhargava.

Another leading car-maker, Hyundai Motor India, said the hike in excise duty on cars will push their prices up anywhere between Rs.6,000 and Rs.25,000. Similarly, General Motors said it will increase the prices of its car models.

"We will increase the prices of our models between Rs.7,500 and Rs.26,000," P. Balendran, director and vice president (Corporate Affairs), General Motors India Private Limited, said.

He added that the partial rollback of the stimulus package was expected.
"The thrust on use of environment-friendly vehicles by concessions on electric vehicles is good. It will enable manufacturers to get CENVAT credit on their inputs," he added.
V.G. Ramakrishnan, senior director (Automotive Practice) for South Asia, Middle East and North Africa at Frost and Sullivan, said: "For the auto industry, the two percent increase in excise duty relating to the SUVs and MUVs (multi utility vehicles) was a bit of a surprise."

According to him, the two segments account for annual sales of around 300,000 units in India. "However, the segment is not growing exceptionally well. But the impact of the excise duty increase will not affect sales as the buyers of these cars are well-heeled ones," he said, adding: "Overall, I expect the prices to go up by 1.5-2.5 percent."
On the excise duty relief for electric vehicles, Ramakrishnan said: "This is a new market. Earlier, there was no excise duty (on such vehicles). Now, the manufacturers will get tax credits for the inputs."

Sounding a different note, K. Ramasamy, chairman of the Coimbatore-based Roots Group manufacturer of auto components told IANS: "This modest increase is a balancing act of the finance minister considering the overall deficit, inflation and to maintain the market pull." 

The United Progressive Alliance (UPA) government had spurred the automobile sector in 2008 by slashing excise duty on two-wheelers (from 10 percent to eight percent), small cars (from 12 percent to eight percent) and big cars from 24 percent to 20 percent.
India is now seen as a hub for the small cars segment and many global majors have ventured into the country in the last four years.

Last year, companies marked their presence across the globe with record exports. The year 2008 also saw the launch of the world's most economical car, the Tata Nano.
According to Dinesh Thakkar, chairman and managing director of Angel Broking stock broking company, the weighted increase in R&D exemption from 150 percent to 200 percent would help to further encourage R&D within the sector.

"The MAT (minimum alternate tax) rate has been increased from 15 percent of book profits to 18 percent, which is negative for  companies like Tata Motors, Mahindra and Mahindra and Ashok Leyland," he added.