Auto sector sweats on possible excise duty hike

The auto sector has emerged from the ashes in 2010 after two years of lethargic performance. Even though the sector has modest expectations from the upcoming Budget, there is still a general apprehension about an increase in excise duty.

According to Arvind Saxena, director (marketing and sales), Hyundai Motor India Ltd, "I would expect the government to take an overall view on how to sustain growth. There is already an interest rate pressure and high commodity prices, which may break the strong growth momentum."

The sector expects this year's growth to be limited to 15 per cent on account of stiff competition, high interest rates and input costs. The buzz that the government may hike excise duty on small cars by two per cent to 12 per cent in this Budget is adding to automakers' concerns.

According to R. C. Bhargava, chairman, Maruti Suzuki India Ltd, high inflation is a big challenge for the sector.

"The high inflation, increased input costs and rising fuel prices are bound to slow down the auto sector's growth. Given the fiscal situation, I don't think we can expect much in the way of tax reductions," Bhargava said. "However, any fresh levies will certainly dampen the sentiments of the sector. If excise on cars is raised (to 12 per cent), it will impact auto sales," he added.

The same sentiments were shared by two-wheeler manufacturers.

"Last year's growth has been a boon to the auto industry. To have the momentum despite the high petrol price, the government should not touch the excise duty at all," Roy Kurian, India business head of Yamaha Motor, said. The auto component sector has its own wish list. The Automotive Component Manufacturers Association of India (ACMA) has demanded nil import duty on steel and aluminium alloys.

"Steel and aluminium alloys account for 60 per cent of the raw material costs in the auto component sector. The duty reduction in steel and aluminium alloys would mitigate the inverted duty structure caused by FTAs (free trade agreements)," Srivats Ram, president, ACMA, said.

He felt this would also help the Indian auto industry access such raw material at international market prices.

The sector also seeks sops like no interest on differential excise duty and 100 per cent central value-added tax (cenvat) credit on capital goods.

Courtesy: Mail Today Bureau