FMspeak has small & big worried

Automobile industry fears a distortion of the market.

The automobile industry fears a distortion of the market as a result of the finance minister's announcement on September 2 "� six months before the Budget "� that the government may provide tax benefits to small cars.

On one hand, potential buyers of small cars may like to wait for the Budget, and the reduced prices, before making up their minds. On the other, genuine big-car buyers may opt for small cars if the tax differential creates a wide chasm between their prices.

"Each model, depending on its price, enjoys a slot in the market and investments by companies are based on that. Any change in the excise for any one section of the industry will distort this equilibrium. Moreover, we are moving towards international standards of the harmonised system of nomenclature for duty purposes, under which I do not think it is possible to give a concessional duty for one segment of the industry," said KK Swamy, deputy managing director, Toyota Kirloskar Motor.

All cars now attract an excise of 24 per cent. The industry has been clamouring that this be reduced to 16 per cent.

Industry observers, however, said postponement of car purchases by potential buyers could be addressed if the government kept the new tax scheme out of the Budget process and declared it soon.

Spokespersons for General Motors, Honda and Toyota voiced concerns over possible market distortions that they felt would be created, should the government treat small car producers with lower excise duty.

"This is one of the most highly-taxed industry, possibly next to tobacco and liquor. A differential duty within the industry will divert the market (buyers) by widening the gap between the existing segments. Any duty reduction should be across the board," said Rajiv Saharia, head of marketing and sales for the premium Honda Siel cars.

The General Motors' spokesperson agreed. "All of us have invested money. There should be a level playing field. Duty cuts must be given to all cars, otherwise it will create market distortions," said P Balendran, vice-president (corporate affairs), General Motors India.

Apprehensions over a possible concessional duty for small cars have been voiced by mid-size and premium car producers despite the fact that most of them have plans to enter the small car segment in the coming years. "Entry into the small car segment will be determined by factors other than duty concessions," said Swamy.