The government extended on Wednesday excise duty concessions for automobiles as well as consumer and capital goods until December 31, in a pre-budget move aimed at reviving manufacturing that is crucial for creating jobs and boosting economic growth.
The duty cuts were announced in the interim budget in February and would have lapsed at the end of the month.
Wednesday’s announcement is the latest in a series of significant pre-budget decisions taken by the new government, including a sharp rise in railway fares.
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Although duty cuts would mean lower revenue for the government, the move is seen as necessary to boost demand, especially in the auto sector which has been bleeding over the past two years.
"We expect it will benefit the economy. So if it benefits the economy, short-term loss of revenue should not be a concern,” finance minister Arun Jaitley told reporters, adding that the decision could not have waited till the budget.
Car sales in India fell 4.65% for the second consecutive year to 17,86,899 units in 2013-14. The previous year, auto sales, often an indicator of a nation’s economic health, had fallen for the first time in a decade.
The government is under pressure to move millions of farm hands to factory jobs that face a squeeze from slowing economic growth.
Following Wednesday’s announcement, excise duty on small cars, scooters, motorcycles and commercial vehicles will continue at 8% from 12% previously. For SUVs, it would remain at a reduced rate of 24% against the previous 30%.
Factory-gate tax on large cars will continue at 24% compared to 27% earlier, while the duty on mid-sized cars will stand at 20%, down from 24% before.
Excise duty on capital goods and consumer durables will continue to attract a lower duty of 10% against the pre-budget rate of 12%.
A notification of extension of the concession was to be issues Wednesday, Jaitley said.
In the hope of reviving demand, most car companies had passed on the benefit of lower excise duty to consumers. This led to auto sales growing 3.08% in May, snapping two successive months of decline in this financial year.
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