Automobiles set to cost more in India with excise duty sops going

This is one bit of news that automakers will not relish with in 2015. It is understood that the Indian government is not going to extend the excise duty relief beyond December 31, 2014, a sop granted first by the previous UPA government in the interim Budget in February 2014 and then extended by the Narendra Modi government in June 2014. The move is in line with the Centre’s effort to meet its budgeted fiscal deficit target of 4.1 percent of the gross domestic product (GDP) for the ongoing fiscal year 2014-15.

In February 2014, excise duty on cars, utility vehicles, two-wheelers and commercial vehicles had been cut to boost sales and market sentiment for the automotive sector. While excise duty on small cars, two-wheelers and commercial vehicles had been reduced from 12 percent to 8 percent, for SUVs, it was cut from 30 percent to 24 percent. For midsized cars, the duty slash was from 24 percent to 20 percent and for large cars from 27 percent to 24 percent.

With the excise duty sops which prevailed for close to 10 months going, vehicles across segments will turn dearer by 4-6 percent on average as a result of automakers passing on the increased cost to consumers, who in turn will delay purchases. Companies of late have been citing an increase in input costs and many of them were all set to hike prices in January. With the excise duty relief to be withdrawn, automakers will be reworking their pricing strategies with immediate effect. However, a formal communication from the government regarding the withdrawal of excise duty sops is yet to be received.

While overall December sales numbers are yet to be released, it is expected that most automakers should do well given the large discounting schemes on offer, particularly from carmakers and two-wheeler manufacturers. November 2014 sales numbers were good, with passenger car sales in having bounced back after two consecutive months of negative sales and the segment recorded a 9.52 percent increase with sales of 156,445 units, up from 142,849 units in November 2013. The beleaguered commercial vehicle sector was also up 9.05 percent, thanks to a 40.14 percent increase in sales of M&HCVs to 16,148 units. The two-wheeler industry saw a growth of 4.89 percent with total sales of 1,301,431 units and the three-wheeler sector grew 3.14 percent in November, with sales of 41,737 units. Overall industry sales across vehicle segments were up were 5.03 percent in November.

For the April-November 2014 period, the industry has grown 10 percent over the April-November 2013 period. Now, with the excise duty sops set to be withdrawn, the industry will be bracing itself for a drop in numbers given the resultant price increases across the vehicle spectrum. The component industry too in turn will be affected as vehicle numbers slow down.

However, not all is lost as there are some positive growth drivers are at play as improved governance, the focus on building roadways and infrastructure, improved manufacturing practices and falling inflation make their impact, albeit gradually. In fact, the government is all set to effect yet another price decrease in petrol and diesel as global fuel prices crash to an all-time low.