Auto industry ready to grow

Wish lists from the auto industry invariably start with the plea for lowering excise duties, writes B.V.R. Subbu.

Wish lists from the auto industry invariably start with the plea for lowering excise duties. Implicit in that suggestion is the belief that consequent demand growth will ensure higher revenue collections.

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Is there enough evidence to support this contention? Consider that even as sales tax rose in 2002 to 12 per cent in many states, automobile sales rose from 4.76 lakhs in '99 to 5.18 lakhs in 2000. And then even though excise duties came down from 40 per cent to 32 per cent in 2001, sales actually fell to 5.06 lakhs!

I believe it is rather simplistic to suggest a direct correlation between automobile demand and excise rates. Clearly, growth in demand for cars comes in the wake of broad-spectrum economy growth, a positive future income outlook and improved business confidence, a lower interest rate regime and sometime even extreme price competition that transfers surpluses from automobile manufacturers to consumers.