Dikshit's car tax proposal irks industry

India's car density too low

Those planning to buy a second car are decidedly a miffed lot overnight, as much as the automobile industry is. This is because of Delhi Chief Minister Sheila Dikshit's sudden idea of taxing the second car.

With an abysmally low car penetration in the country, the industry feels that a nationwide tax on the purchase of a second car will only stymie growth.

To decongest roads, Dikshit had mooted the idea at a meeting of chief ministers in the Capital yesterday.

"Whether you take the vehicles per 1,000 people or per kilometre, India is way below the global list. Countries with much higher density of vehicles have much more liberal tax regimes and see the automobile industry as an engine of growth.

The issue of congestion is not about the density of vehicles but about traffic management and lack of infrastructure," said Dilip Chenoy, director-general of the Society of Indian Automobile Manufacturers.

While developed countries like the US, the UK and Japan boast of 454, 476 and 435 cars per 1,000 population, respectively, the count in India is as low as 7 per 1,000. In a list of major markets for cars in the world, India ranks among the lowest with peers like China (5 per 1000) and the Philippines (9 per 1000).

Even India's neighbour Pakistan has a car penetration level of 12 per 1000.

"Attempts to curtail sales of cars with a view to decongest roads may be noble but not a practical one. If decongestion and safety on roads are the concerns, then there are several other ways to tackle the problem," said the CEO of a leading car manufacturer. In Japan, for example, special tax incentives are available for buying smaller cars.

The downstream effect of curtailing car sales can be even more severe. Sample this: An estimated 850 kg of steel (16 per cent in cost terms) go into the production of a car.

This is apart from the plastic and glass that are used. Lower purchases of cars will mean a direct impact on the secondary and tertiary sectors too.

"The automobile industry is already a highly-regulated and highly-taxed industry. Frequent increase in tax will only increase the cost of ownership for the common man," added Chenoy.

The annual demand for passenger vehicles in India (based on 2004-05 data) is around one million units. The industry is on the threshold of posting a 10-15 per cent average annual growth in the coming years.

Demand is expected to double to two million by 2010.