Car Duty Cuts Extended, But They Haven’t Helped

Comments Off Written on June 26th, 2014 by
Categories: Budget2014Interim, Budgets, Government

The government has extended the excise duty cuts, given for Automobiles by Chidambaram in his budget. These reduced excise duty of cars by upto 4%, which, on a Rs. 500,000 (five lakh) car, was about Rs. 20,000 lower.

In addition, excise duty on most appliances were cut by 2%, as was duty on capital goods. This continues till December 31.

In their press release:

In order to provide a fillip to the capital goods and automobile sector, and given its commitment to revive the economic growth, the Government of India has decided today to extend these duty concessions beyond 30th June for a period of six months upto 31st December, 2014. This announcement was made here today by the Union Finance Minister Shri Arun Jaitley while making a Statement before the media. He said that notification to this effect is being issued today.

In February 2014, the Government had reduced the excuse duty on:
• Small cars, motorcycles, scooters, three wheelers and commercial vehicles from 12% to 8%;
• Mid-segment cars from 24% to 20%;
• Large cars from 27% to 24%; and
• SUVs from 30% to 24%.

This was done in the wake of an unprecedented negative growth in the automobile industry.

Likewise, to stimulate growth in the capital goods and consumer durable sector, excise duty was reduced from 12% to 10% on all goods falling within Chapters 84 & 85 of the Central Excise Tariff.

However, despite duty cuts, auto-sales have not picked up during March-April, 2014, although some positive signs could be seen from the sales figures of May 2014. Sales of capital goods and consumer goods continue to be sluggish.

My take

Why is this being done before the budget? They could have continued it till July 31 and then done the larger round in the budget, if they intended the measure to stay. But they don’t, so it’s only a small extension.

Which could mean that there are no broad excise duty cuts in the budget. (If there were, then extending this to December makes no sense)

My personal feeling is that excise duty on cars is too much. 20%+ duties are too much.

Secondly, this has not really resulted in price cuts, have they? Sure, Maruti cut prices in February when the interim budget came out. But they had raised them in January!

And worse, they attempted to raise prices again in April.

Our car industry is going to see serious disruption. I find fewer people willing to upgrade their cars now, because cars seem to work beautifully years later. (I have a 2002 Fiat Palio that just works). And the cities are getting congested so people can’t find parking or don’t want to drive. Finally, the cabs are coming and they’re coming down to the price of autorickshaws, and buses (at least in Bangalore) are a real option. Will this change the car sales figures substantially? I hope so, and the industry must adapt.

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The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@capitalmind.in.