BackEnd of excise duty pushed car sales up 15.26% in December
Car makers sold 152,743 units last month, up from 132,524 units in December 2013, said Siam
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New Delhi: Car sales rose 15.26% in December as customers advanced purchases in anticipation that the government would withdraw an excise duty cut, delivering a boost to vehicle sales in the first nine months of the fiscal year.
Sales rose to 152,743 units last month from 132,524 units in December 2013, said the Society of Indian Automobile Manufacturers (Siam), which warned that sales may decline in January and February.
Buyers anticipated, rightly, that the government would roll back the excise duty cut at the end of December and hastened purchases before the year-end.
Excise duty on small cars, scooters, motorcycles and commercial vehicles was reduced in February last year to 8% from 12% previously, by then finance minister P. Chidambaram.
In December, sales of medium and heavy commercial vehicles (M&HCVs) grew, albeit on a low base, by 58.33% as transporters expanded their fleets in a sign that they expected an increase in economic activity, Siam said.
But poor motorcycle sales indicate tepid rural demand—a matter of concern for not only the automobile industry, but also for policymakers. Sales of motorcycles declined 3.52% to 779,908 units during December.
“Motorcycle sales were a silver lining until recently," said Siam’s deputy director general Sugato Sen.
A delayed and deficit rainfall hurt the summer crop and consequently agricultural incomes. Also, in October, the government raised the minimum support price (MSP) for wheat and rice in the range of 3-4%—the lowest in recent years.
Siam said car sales grew 4.99% during the first nine months till December to 1.35 million units, while total automobile sales rose 9.55% to 14.9 million units. Overall passenger vehicle sales, which include cars, utility vehicles and vans, increased 3.67% to 1.89 million units.
Sales of M&HCVs, an indicator of economic demand, rose 10.33% to around 160,000 units.
Two-wheeler sales were up 11.04% to 12.1 million units.
“We may not be able to post the kind of performance that we saw three years ago until some real economic growth happens on ground," Sen said.
Between 2010 and 2012, car sales were growing in the range of 20-25% on a sequential basis. Economic growth slowed to sub-5% levels in each of the past two years, while borrowing costs have been kept high to cool inflationary pressures, hurting consumer demand.
“We are hopeful that 2015 will be better as the reforms initiated by the new government will start realizing their potential," Sen added.
Since the National Democratic Alliance government came to power in May, it has opened up railways, defence, insurance and construction sectors to more private and foreign investments.
It has allowed 100% foreign direct investment (FDI) in railway infrastructure, increased the cap on FDI in the defence business and insurance sectors to 49% from 26%, and eased FDI rules in the construction sector. It is also looking to raise ₹ 58,425 crore this year through stake sales in state-owned companies that include Coal India Ltd, Oil and Natural Gas Corp. Ltd and NHPC Ltd.
A crucial step will be the introduction of the goods and services tax, Sen said.
According to Anil Sharma, a research analyst with IHS Automotive, a sector-specific consultancy, 2014 will be remembered as the year when a glimmer of hope returned to the auto sector after the decade’s worst performance in the previous year, when sales contracted. “The remaining part of the fiscal year may still be difficult for the industry, but I believe from the first quarter of fiscal year 2016, industry will see some good growth," he said.
Sharma’s assumption is based on the hope that the Reserve Bank of India will start cutting interest rates soon, which will lower borrowing costs.
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