Mumbai: Auto parts makers heaved a sigh of relief after the finance minister announced a lower-than- expected rollback of an excise duty cut and did not raise service tax, industry officials and analysts said on Friday.
“It’s a good budget. It was a tightrope walk for the finance minister. He has tried to continue the growth stimulus with a lot of prudence,” said Vishnu Mathur, executive director at the Auto Components Manufacturers Association.
Watch videos, play the budget game, and find out how the budget affects you. All that and more on Livemint.com’s exclusive Budget 2010 microsite. (Click here)
“The increase in excise duty was expected. He has not increased service tax, which was one of our main worries,” he said.
Pranab Mukherjee in his address to Parliament said the government would roll back a 2% excise duty cut on large cars and sports and multi-utility vehicles, which was part of an earlier stimulus package to revive the economy.
He also retained the tax on services at 10% and raised excise duty on petrol and diesel by Re1 per litre.
“The industry was getting ready for some rollback in fiscal benefits. Since it (excise duty) has gone up by only 2%, to that extent it has come as a relief,” said Paras Chowdhary, managing director of tyre maker Ceat Ltd.
The move to raise personal income tax slabs limits in the Budget also cheered the industry, which expects this to enable potential consumers to buy more bikes and cars.
“The hike in excise duty was factored in, and it was not as high as was expected.
Despite this and the rise in duty on petrol and diesel what is positive for the auto sector is the change in income tax slabs,” said Jatin Chawla, analyst with India Infoline
“For a person in the 8 lakh income category, he will have an additional Rs50,000 as disposable income,” Chawla added.
The auto index quickly extended gains after the Budget announcement and ended the day about 5% higher.
Shares of auto parts makers such as Amtek Auto, LG Balakrishnan and Bharat Forge ended up between 4 and 8%.
Sales of auto parts makers has been constantly rising buoyed by the stimulus measures announced last year and rising car sales as buyers made the most of softer interest loans.
India’s monthly car sales touched a record high in January and car sales are forecast to rise 16% this year and by 12-13% next year.
“Overall it was a positive budget. The hike in excise duty can be absorbed. And with the change in income tax slabs, people will have more disposable income and sentiment will be positive,” said Sulajja Motwani, managing director, Kinetic Motor.
The auto parts industry had sought a Rs1,000 crore technology development fund, besides tax holidays for new projects and an increase in customs duties on imported components to 10% from 7.5%. Tyre makers were hoping for a steep cut in customs duty on natural rubber.
However, these demands were not addressed in the Budget.