Mumbai: Car buyers might have to wait for another Budget for all car prices to come down. While the government has cut customs duties on certain car components, there is little change expected in terms of cuts in excise duty, which made small cars cheaper in the last Budget.
However, auto stocks rallied on Wednesday, with the BSE Auto index gaining 24.78 points intra-day, ending at 5,562.20 on rumours of excise duty being cut on cars following last year’s decision. The benchmark BSE Sensex lost 64.9%, ending the day with 14,188.5 points.
The Union government, in a decision conveyed to the automobile industries in February, has decided to lower the customs duty on certain components from the existing levels of 12.5% to 5%. These include certain types of die, moulds and electronic circuitry.
While this could end up in car makers getting cheaper components, in the long run this could mean the domestic auto part industry might suffer. Demand from car companies account for 54% of sales of domestic automotive components manufacturers.
The automotive industry has put forth a recommendation to bring down the excise rates on vehicles across the board by 8%, said Dilip Chenoy, director-general, Society of Indian Automobile Manufacturers (SIAM). While the duty structure on small cars is already at 16%, SIAM has suggested that duty structure be rationalized to 16% for all passenger vehicles, two and three-wheelers and large taxis, or maxi-cabs.
The finance minister had brought down the excise on small cars from 24% to 16% in last year’s Budget.
While the decision to lower customs on certain components might benefit automotive manufacturers in bringing down their prices, it could spell doom for the local components’ manufacturers, said Vishnu Mathur, director-general of the Automotive Components Manufacturers Association of India.
“The decision would mean imports of certain goods from certain countries and have unfair price advantage,” he said. He agreed though, that it could help India’s exports.
According to the Automotive Mission Plan document prepared by the Centre, the Indian auto component sector has over 500 organized players, and about 5,000 unorganized players. The organized sector reached a turnover of over $10 billion (Rs44,170 crore) in 2005-06.