The Indian auto industry, which is battling a dip in sales, is unlikely to get any relief in the form of credit subsidies for consumers or excise cuts in this year’s Union Budget, said a person who was part of a group that is lobbying for concessions.
This person, who did not want to be named, however, said some tax relief might be given for the purchases of buses for public transport.
The Society of Automobile Manufacturers (Siam) declined to talk about what demands they have put across to the government, but the same person who is involved in the talks, said the industry grouping has asked for an 8% reduction in the excise duty on buses as a measure to improve public transportation in the country and tax cuts for import of hybrid vehicles.
Hybrid vehicles are more fuel-efficient as they combine conventional propulsion systems with onboard rechargeable energy storage units.
In September, Union minister of heavy industry and public enterprises Sontosh Mohan Deb said the government would intervene to boost sales in the sector at a meeting of Siam after it was apparent that two-wheeler sales, a leading economic indicator, had started tumbling.
While the heavy industry ministry can lobby for tax cuts, the power vests with the finance ministry whether to grant them.
Automobile manufacturing contributes to 5% of the gross domestic product and 17% of indirect taxes, or taxes collected by an intermediary and borne by the end-user.
Typically, the government likes to keep the auto industry robust because it also affects transportation of goods in the economy. The last time when the finance minister intervened in the industry was in the budget two years ago when he cut the excise tax on small cars by a third to 16%.
“The finance ministry has to take the final call,” said an official with the ministry of heavy industry, who isn’t authorized to speak publicly on the matter. He was referring to whether any segment would get any sops. Finance ministry officials were unavailable for comment.
However, the talks between the heavy industry and finance ministries are likely to continue to next week, the official said.
Automobile sales in India slumped by 1.3% in 2007 from a year ago as five-year-high lending rates forced customers to avoid or defer purchases while banks stayed away from financing two-wheeler purchase due to higher delinquency rates. Preliminary data of sales in January this year reinforced this trend with an 8.9% decline in car and two-wheeler sales.
This dip in sales comes after about five years of double-digit growth and early last year the government unveiled a 10-year growth plan—Automotive Mission Plan 2006-16—which envisages a doubling of the auto industry’s contribution to the nation’s economic output.