Harsha JethmalaniMoneycontrol.com
Auto sector's prayers have been answered. In his last ditch attempt before the general elections, to revive the manufacturing sector, Finance minister P Chidambaram has slashed excise duty on autos support the sector because of sluggish growth. He cut excise duty for small cars/commercial vehicle (CV) from 12 percent to 8 percent, 20 percent on large and mid segment cars. Excise duty on SUVs has been reduced from 30 percent to 24 percent.
Despite numerous snubs in the past, the auto industry was hopeful that FM would announce some measures to cheer the slowdown hit sector. Many senior executives in the industry told CNBC-TV18 that this intensity of slowdown can be sustained for another six months at most. In the CV industry alone, there have been 23 months of consecutive decline and about over USD 2 billion worth of capacity investments had been put on hold.
Auto stocks Maruti Suzuki India, Tata Motors, Mahindra and Mahindra and Bajaj Auto were up 1-2 percent post this announcement.
Also Read: FM pegs fiscal deficit at 4.6% of GDP
Maruti has welcomed the cut in excise duty with both hands. The company told CNBC-TV18 that reduction of excise in the SUV segment by 6 percent is the biggest positive. It expects that this cut will help them to come out of the negative trend and growth in compact car will improve from hereon.
The car market leader hopes that new government will keep cut in excise duty. Wagon R, Alto and Ritz are the company's famous small car brands. The company's multi- purpose van Ertiga was launched last year. The company said that it will pass on excise benefits to consumers with immediate effect and hopes that significant price reduction, will spur a revival in the sector.
Though the cut in excise will lessen the burden on operators, demand for CVs is likely to remain subdued due to low freight availability, Ashok Leyland said. The Chennai-based heavy vehicle major told CNBC-TV18 that it doesn't see turnaround in the CV sector until economy picks up.
Mahindra and Mahindra’s Pawan Goenka, who was not expecting all these measures told CNBC-TV18 that this move will be margin neutral, but will boost demand, if continued. Utility vehicle major would also pass on the excise duty reduction to consumers and sees a reduction of Rs 40,000 in SUV prices. Goenka further added that Auto Expo and Interim Budget will serve as triggers for auto demand. Scorpio and XUV 500 are company’s successful SUV models.
Tata Motors has said that it will be lowering prices of its passenger vehicles and sports utility vehicles from Tuesday.
Recently, the heavy industry minister Praful Patel had written to the finance minister once again raking up the issue of stimulus. SUV tax was introduced by the FM last year. In the interim Budget 2009, then finance minister had introduces key excise duty cuts when Pranab Mukherjee had brought down the excise duties from 14 percent to 10 percent and also introduced the Jawaharlal Nehru National Urban Renewal Mission (JnNURM).
"To give relief to the automobile industry, which is registering unprecedented negative growth, I propose to reduce excise duty," Chidambaram said in his interim budget speech today.
Car sales in India fell for the fourth straight month in January this year with a decline of 7.59 percent. According to data released by the Society of Indian Automobile Manufacturers (SIAM), domestic car sales stood at 1,60,289 units in January this year compared to 1,73,449 vehicles in the same month of 2013.
Maruti Suzuki India in January posted 6.88 percent decline in its domestic sales at 82,461 units as against 88,557 in the same month last year. Hyundai Motor India Ltd also posted 2.61 percent dip in sales during the month at 33,351 units as compared to 34,247 vehicles in January last year. Tata Motors' sales fell by 24.38 percent to 8,463 units in January from 11,192 in the same month last year.
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