Car buyers might have to wait for another budget for all car prices to come down. While the government has cut customs duties on certain car components, there is little change expected in terms of cuts in excise duty, which made small cars cheaper in the last budget.
However, auto stocks rallied on Wednesday, with the BSE Auto index gaining 24.78 points intra-day, ending at 5,562.20 on rumours of excise duty being cut on cars following last year’s decision. The benchmark BSE Sensex lost 64.9 per cent, ending the day at 14,188.5 points on Wednesday.
The union government, in a decision conveyed to the automobile industries in February, has decided to lower the customs duty on certain components from the existing levels of 12.5 per cent to 5 per cent. These include certain types of dies, moulds and electronic circuitry.
While this could end up in carmakers getting cheaper components, it could in the long run mean the domestic industry that supplies carmakers might suffer. Demand from car companies account for 54 per cent of sales of domestic automotive components manufacturers.
The automotive industry has put forth a recommendation to bring down the excise rates on vehicles across the board by 8 per cent, said Dilip Chenoy, director general, Society of Indian Automobile Manufacturers (SIAM).
While the duty structure on the small car is already at 16 per cent, the Society of Indian Automobile Manufacturers (SIAM) has suggested the duty structure be rationalised to 16 per cent for all passenger vehicles, two and three wheelers and large taxis, or maxi-cabs.
The finance minister had brought down the excise on small cars from 24 per cent to 16 in last year’s budget.
While the decision to lower customs on certain components might benefit automotive manufacturers in bringing down their prices, it could spell doom for the local components manufacturers, said Vishnu Mathur, director general, Automotive Components Manufacturers Association of India (ACMA).
"The decision would mean imports of certain goods from certain countries would have unfair price advantage," he said. He agreed though, that it could help India’s exports.
According to the Automotive Mission Plan document prepared by the union government, the Indian auto component sector has over 500 organised players and about 5000 unorganised sector players.
The organised sector reached a turnover of over $10 bn (Rs 44,170 cr) in 2005-06. Other than the carmakers, replacement market accounts for 30 per cent, while exports account for over 16 per cent at about $1.8 bn (Rs 7,951 cr).