India’s small-car makers, though relieved, have an unsolved problem on their hands: How long will their small cars stay small?
The finance minister—by keeping mum about this in the Budget and, thereby, not changing the definition of ‘small cars’ that determines tax discounts—has spooked car makers because it is in conflict with a with a long-term industry blueprint released by the PM in January. The trouble is, it’s done nothing to nail what definition the country will finally adopt.
Chidambaram previously defined vehicles, which were less than four metres long and had an engine capacity not exceeding 1.2 litres (petrol) and 1.5 litres (diesel), as small cars, granting them an 8% concession in excise tax. The latest Automotive Mission Plan 2006-2016 defines small cars as less than 3.8 metres with no restrictions on engine size.
“It is prolonged agony for us since there is no clarity on the definition of the small car,” said Jnaneshwar Sen, senior general manager, Honda Siel Cars India. “Based on the indications given in the last Budget, we have made certain investment decisions based on the 4-metre definition.”
Honda plans to launch a compact car in the first quarter of 2009, for which it is building a new plant in Rajasthan for Rs2,000 crore. A rush to avail tax breaks led to companies going back to the drawing board and putting together combinations of car sizes and engine capacities: Hyundai Motors India and General Motors India are two such car makers. “The speculation has been put to rest for the moment,” said Rajeev Chaba, president and MD, General Motors India. “It’ll keep bothering us till we get clarity on what will be the definition.”
GM recently launched the Chevrolet U-VA, after a six-month delay, resulting from fitting a smaller 1.2-litre specifically to avail the excise sop. A change in the definition would have excluded the Chevrolet U-VA from the category of cars that could avail the tax discount. At 3.88 metres, the model is just a tad longer than the one in the automotive blueprint for the next 10 years.
Hyundai too is working on a smaller engine for its Getz model. “The speculation has been put down at least till the next Budget,” said Arvind Saxena, vice-president at Hyundai’s Indian unit. In the previous Budget, Chidambaram cut the excise tax on small cars from 24% to 16% to make them more affordable in Asia’s fourth-largest automobile market. Every seven of 10 cars made in India are small cars. Currently, there are as many as eight models of small cars and the same number is planned in the next four years.