Arun Jaitley's suspense on excise duty may hit auto makers hard

As the country's largest car maker Maruti Suzuki India is set to clock a new record in sales in 2014 with 11.48 lakh units, auto makers anxiously watch if the reduced excise duty regime will be extended to next year. Finance minister Arun Jaitley on Wednesday said that they would have to wait till December 31.

"Wait till December 31", finance minister Arun Jaitley said when asked if the government would be extending the reduced excise duty incentive expiring on December 31.

The previous UPA government had cut excise duty on cars, SUVs and two-wheelers in the Interim Budget in February to help the industry tide over a demand slump. Excise duty was reduced to 24 per cent from 30 per cent in the case of SUVs, 20 per cent for mid-sized car from 24 per cent and 24 per cent for large cars from 27 per cent.

In June, the new government led by Narendra Modi extended the excise duty concession by six months to December 31. After two successive years of sales slump, the auto industry had shown some growth posting a growth of 10.01 per cent in April-November period this financial year at 1.33 crore units as against 1.21 crore units in the year-ago period.

Car makers have asked the government to extend excise duty relief saying removal of this incentive could push the industry into negative territory. Already, many automobile companies, including Maruti, Hyundai, Tata Motors, Renault, Nissan and Mahindra & Mahindra, have announced that they would increase prices of their vehicles from January citing rising input costs.

Maruti Suzuki, which saw record sales of over 11.48 lakh units driven by growth across segments also expressed concern that a hike in excise duty could hurt the overall auto industry.

Maruti Suzuki India (MSIL) chairman RC Bhargava said if the incentive is not continued beyond December 31, automobile prices would go up further in the next year.

"It could derail the auto industry. If it lapses then prices go up by 4 per cent and we will have to pass on the burden to the customer.

If it remains the same then we will continue to pass on the cost benefit," he said.

The company, which sells various popular models including Swift and Dzire, has also enhanced its market share to 44.8 per cent in the April-November period, up 4.1 per cent from the same period of previous year. During the period, the company's total sales have grown by 13.1 per cent to 8,35,912 as against 7,39,247 units in the year-ago period.

Meanwhile, Maruti Suzuki India is also awaiting clarity on the amendment to the Companies Act before going ahead with the minority shareholders' voting on its plans to let parent Suzuki Motor Corp own and invest at the upcoming Gujarat plant.