Budget Wishlist | Cut taxes foreign cars, hike them on Indian roads

Budget Wishlist | Cut taxes foreign cars, hike them on Indian roads
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First Published: Thu, Feb 14 2008. 12 26 PM IST

Murad Ali Baig, Auto expert and columnist
Murad Ali Baig, Auto expert and columnist
Updated: Thu, Feb 14 2008. 12 26 PM IST
New Delhi: The auto industry is expecting a scenario where raising taxes will restrict the proliferation of automobiles which in turn can curb the growing problems with traffic congestion, parking and pollution.
Murad Ali Baig, Auto expert and columnist
Density of cars in India is among the lowest in the world and that the problem is not of having way too many cars or bikes but an infrastructure that never planned adequately for the demands of modern development.
Planners did not factor in the significance of fuel efficient and reliable new Japanese products like the 100 cc motorcycles in 1981 and the Maruti car in 1983 that suddenly accelerated demand.
India today has just one car for every 100 people as compared to 9 in Thailand, 6 in Malaysia, 2.6 in Japan, 2.1 in USA and UK. Auto pollution too is linked to auto density but it accounts for less global warming than power plants and deforestation.
Few planners realize that the automotive industry is the world’s largest manufacturing industry and the biggest driver of employment and growth. According to the Japan Automobile Manufacturer’s Association, automobiles contribute to 21% of Japan’s GDP and are the main engine of its economic growth employing 7.3 million people.
The Society of Indian Automobile Manufacturers (SIAM) confirms that the auto industry currently contributes to nearly 12% of India’s GDP but is capable of far greater acceleration.
Track rising employability in townships where auto manufacturing units come up
The impact on employment can be seen from the example of Maruti that directly employs about 6,500 people and will make over 700,000 cars this year. But the 1,000 trucks used to deliver them create employment for about 15,000 people. Their 2,000 dealers and workshops employ over 60,000. Maruti makes no steel, aluminium, castings, forgings, tyres, batteries, electricals, brakes, glass and components. Their vendors and suppliers of materials make 70% of their cars. The employment by the vendors, just dedicated to Maruti cars, must exceed 200,000.
Maruti’s production thus creates indirect employment for over 350,000 people and all the other makers of cars, trucks, tractors, and 2-wheelers may generate well over 2,000,000 regular jobs. There is also need for mechanics to service some 50 million 2-wheelers, 12 million cars and 6 million trucks and buses on the road plus those engaged in supplying music systems, accessories, etc. These regular jobs create another huge multiplier effect of tertiary employment for the millions who supply these salaried employees with food, clothing, shelter, education, medical facilities and entertainment.
Anyone who has seen the sudden explosion of new townships near the plants of Maruti, Tata Motors, Hyundai, M&M, Toyota, Ford, GM, Ashok Leyland, Hero Honda, Bajaj and TVS has witnessed the immediate impact of automobiles on employment and economic growth. Tea shops became hotels and hotels expand into housing estates. Grocery stores became supermarkets. Schools, hospitals, cinemas, restaurants and real estate developers multiply. Doctors, architects, builders, interior decorators, masons and carpenters and caterers stream in. Unlettered locals prosper as contractors and their children end up enrolling in better schools. Prosperity creates even more prosperity.
Double road space in smaller cities imperative
India’s annual growth rate at 8 to 9% is deceptive as it is pulled back by slow growth in agriculture. Studies show that urban middle class incomes are growing at 18% per annum. India is a country with a hot and dusty climate where large numbers of increasingly prosperous people will demand the comfort and efficiencies of motorized transport instead of the agony of bicycles, bullock carts and bad public transport.
Town planners will have to wake up to the need for finding ways to double the road space in Indian cities. There should also be taxes on cars parked on the streets
If they do not get the cars, bikes and quality public transport they need and the roads to drive them on, some 200 million people who use 70 million automobiles daily will become an angry political force. With growing prosperity, political compulsions will shift from pleasing the poor to pleasing all with real development. Town planners will have to wake up to the necessity of finding ways to double the road space in every Indian city. No new residential or commercial construction should be allowed without adequate ‘in site’ parking and there should be taxes on cars parked on the streets.
Re-examine taxation on indigenous cars
Every country needs taxes to feed the huge appetite of its government but few countries have so many government stomachs to feed. Most people are unaware that the multitude of taxes under the central government, state governments, local governments and authorities etc. has a horrific cascading effect. Every Indian made car carries the burden of 40% Modvat that includes the customs duties on its imports, plus 16 to 24% excise duty, another 12% sales tax plus octroi and local taxes. So the basic cost of every indigenous car is weighed down by 89 to 104% taxes.
Cut taxes on imported cars
The impact is much greater on imported vehicles. So whenever an Indian buys a foreign car he donates another to the government in taxes. Not surprisingly many cars sold in India cost much more than similar models in Thailand and other ASEAN countries. Most buyers in Europe, America and many developed countries pay a flat 15% VAT that includes all customs and local taxes. India should work towards a similar unified tax system.
Tax sops for green vehicles
There is also need for positive tax incentives to reduce the costs of low pollution electric cars and scooters and to encourage the wider use of less polluting CNG and Auto LPG vehicles as well as bio fuels like ethanol in petrol and jethropa oil for diesel vehicles.
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First Published: Thu, Feb 14 2008. 12 26 PM IST