An excise duty cut would under normal circumstances be lapped up by any industry. But the 4 per cent cut in duty for all automobiles earlier this month has ironically, added to the industry's growing list of woes.
With inventories at an all-time high, excise duty to the tune of almost Rs 500 crore has already been paid for cars, two-wheelers and commercial vehicles which are still to find takers. With the duty cut, the retail price too fell, and the differential will have to be borne by dealers and manufacturers.
"Dealers generally keep an inventory of two weeks but due to a poor festive season in October, it has gone up to between 30-60 days," said Gulshan Ahuja, Secretary General, Federation of Automobile Dealers Association. "The impact is substantial and has to be borne by dealers themselves. We are in talks with manufacturers for some compensation and at least a couple of them have agreed to bear half of it."
Industry estimates indicate around 150,000 cars, 600,000 two wheelers and 60,000 commercial vehicles produced before December 7, are lying as inventories with dealers or manufacturers.
"We generally expect duty cuts in the budget and try and keep inventories at bare minimum that time. This time however, bad festive season meant inventories were unusually high and the duty cut has only accentuated our problems," said a Bajaj Auto dealer in Delhi. "We cannot sell bikes at the earlier prices and the differential directly impacts our bottomlines."