 "Govt extends UPA's excise sops for key sectors")
In a move that will give a fillip to some of the important sectors of the economy, such as automobiles, capital goods and consumer durables, Finance Minister Arun Jaitley on Wednesday extended the excise sops in the United Progressive Alliance (UPA) government's interim budget for another six months.
The incentives - a reduction of two percentage-points in excise duty on capital goods and consumer durables and between three and six percentage points on automobiles - were announced in the interim budget in February and were to expire by the end of this month. Now, these will be applicable till December 31.
Industry hopes the move will lift sluggishness in consumer sentiment but does not expect it to lead to a significant spurt in sales or order books in the months ahead, unless the overall economy turns upbeat.
Despite the announcement of these concessions in February, automobile sales had not picked up significantly in March-April. There, however, were some positive signs in May. The finance ministry admitted in a statement on Wednesday that sales of capital and consumer goods continued to be sluggish. Announcing the extension, Finance Minister Arun Jaitley said: "Considering the present situation in various sectors, the government has decided to extend the facility of reduced excise duty to all those sections for a period of six months; that is, till December 31 this year."
Jaitley added the decision on extending the concession, earlier valid till June 30, could not have waited till the Budget to be presented early next month.
According to senior ministry officials, the excise duty cuts have translated into a revenue loss of Rs 500 crore per month. But Jaitley said the short-term loss from the extension would benefit the economy in the long run. "If it benefits the economy, short-term loss of revenue should not be a concern," he said.
Automobile companies said the concessions had not led to a substantial increase in sales but had stemmed a decline. Maruti Suzuki Chairman R C Bhargava said: "The excise reduction did not lead to any real sales increase but might have prevented a further fall. If the government had not continued it at this stage, when sales are still fragile, vehicle sale would have fallen drastically. So, the extension is a good move that was necessary at this stage. The situation will again have to be reviewed in November." Passenger vehicle sales had declined 7.30 per cent in March and 9.50 per cent in April this year before rising a nominal 2.76 per cent in May.
Two-wheeler giant Bajaj Auto, too, doesn't see the extension by itself leading to a sales increase.
Bajaj Auto Managing Director Rajiv Bajaj said: "For motorcycles, this excise reduction represents a relatively small component of the total ownership cost. So, it works more to motivate the industry's spirit than boosting its sales." The excise duty concession extended to two-wheeler buyers translated into about Rs 100 a month, he said.
TVS Motors Chairman & Managing Director Venu Srinivasan said: "This is a welcome move, given the fiscal deficit position. There should be a pick-up in overall demand in the next few months. By January, if there is a demand pick-up, the government could take some decisions. Six months are a fairly reasonable period."
Hero MotoCorp Managing Director & Chief Executive Pawan Munjal agreed but called for a long-term thinking: "It is certainly a good move. But the need of the hour is a long-term, consistent and uniform excise policy for the benefit of customers and sustainable revival of the industry. It would have been better if it was extended till March 2016. The automobile sector still continues to be sluggish and a sub-normal monsoon is likely to further dampen demand, both in rural and urban areas."
Some auto makers, however, are hopeful that the move would give them a fillip during the monsoon season. Mahindra & Mahindra Executive Director Pawan Goenka said: "We in the auto industry are delighted at this proactive announcement. This will give the much-needed boost to the industry as it heads for the festive season."
Industry experts also welcomed the extension of excise duty cuts. Krupa Venkatesh, senior director, Deloitte in India, said: "Welcome move for the auto sector. However, it has given rise to an inverted duty structure with regard to some inputs, which also needs to be addressed, if the sector has to reap the entire benefit of lower duties."
Though Jaitley hoped the concessions would be passed on to consumers, companies in the consumer durables sector said only the increase in their costs would be neutralised. "When it was first announced in the interim budget, prices didn't move," said Haier Appliances India President Eric Braganza, adding "I don't see any downward revision in price even now. The duty cut had simply insulated the industry from taking further price increases. That will be the case even now."
Others found it only a minor relief. "It is a relief, but only just," said Videocon Industries Chief Operating Officer C M Singh. "The rupee has breached the 60-a-dollar mark and the fear is it will get worse with the crude oil price rising, thanks to the Iraq crisis. If there was no extension in duty, it would have been disastrous for the industry."
While the consumer durables industry has contracted over the past few years on account of weak consumer sentiment and a cutback in discretionary spends, the April-June period this year has been good for it, given a hot and extended summer season. Air conditioner and refrigerator manufacturers, which have seen 15-20 per cent sales growth so far, say this is likely to continue till the end of June.
As regards the troubled capital goods sector, the excise duty reduction announced in the interim budget had brought comfort but failed to give a major impetus to order inflows, as the investment climate was yet to revive. R Govindan, vice-president (corporate finance), Larsen & Toubro, said: "The extension of duty concession is a relief to the industry. With this move, the government has signalled it is committed to boosting growth. The economy is still not buoyant but there are expectations of a turnaround. The situation should hopefully improve with continuation of the excise duty cut."
EY Tax Partner Bipin Sapra said: "Extension of excise cut for another six months for some sectors is certainly a positive move as the benefits (of such cuts) are usually reaped at least after nine-12 months. The earlier decision of providing the excise cut for three months would not have worked as it was too short a period. Also, the revenue loss is only for the short term; it will be recoverable in the long run. We expect more such sops in the coming Budget, which will boost investment and be beneficial for the manufacturing sector as a whole."
The incentives - a reduction of two percentage-points in excise duty on capital goods and consumer durables and between three and six percentage points on automobiles - were announced in the interim budget in February and were to expire by the end of this month. Now, these will be applicable till December 31.
Industry hopes the move will lift sluggishness in consumer sentiment but does not expect it to lead to a significant spurt in sales or order books in the months ahead, unless the overall economy turns upbeat.
Despite the announcement of these concessions in February, automobile sales had not picked up significantly in March-April. There, however, were some positive signs in May. The finance ministry admitted in a statement on Wednesday that sales of capital and consumer goods continued to be sluggish. Announcing the extension, Finance Minister Arun Jaitley said: "Considering the present situation in various sectors, the government has decided to extend the facility of reduced excise duty to all those sections for a period of six months; that is, till December 31 this year."
Jaitley added the decision on extending the concession, earlier valid till June 30, could not have waited till the Budget to be presented early next month.
According to senior ministry officials, the excise duty cuts have translated into a revenue loss of Rs 500 crore per month. But Jaitley said the short-term loss from the extension would benefit the economy in the long run. "If it benefits the economy, short-term loss of revenue should not be a concern," he said.
Automobile companies said the concessions had not led to a substantial increase in sales but had stemmed a decline. Maruti Suzuki Chairman R C Bhargava said: "The excise reduction did not lead to any real sales increase but might have prevented a further fall. If the government had not continued it at this stage, when sales are still fragile, vehicle sale would have fallen drastically. So, the extension is a good move that was necessary at this stage. The situation will again have to be reviewed in November." Passenger vehicle sales had declined 7.30 per cent in March and 9.50 per cent in April this year before rising a nominal 2.76 per cent in May.
Two-wheeler giant Bajaj Auto, too, doesn't see the extension by itself leading to a sales increase.
Bajaj Auto Managing Director Rajiv Bajaj said: "For motorcycles, this excise reduction represents a relatively small component of the total ownership cost. So, it works more to motivate the industry's spirit than boosting its sales." The excise duty concession extended to two-wheeler buyers translated into about Rs 100 a month, he said.
TVS Motors Chairman & Managing Director Venu Srinivasan said: "This is a welcome move, given the fiscal deficit position. There should be a pick-up in overall demand in the next few months. By January, if there is a demand pick-up, the government could take some decisions. Six months are a fairly reasonable period."
Hero MotoCorp Managing Director & Chief Executive Pawan Munjal agreed but called for a long-term thinking: "It is certainly a good move. But the need of the hour is a long-term, consistent and uniform excise policy for the benefit of customers and sustainable revival of the industry. It would have been better if it was extended till March 2016. The automobile sector still continues to be sluggish and a sub-normal monsoon is likely to further dampen demand, both in rural and urban areas."
Some auto makers, however, are hopeful that the move would give them a fillip during the monsoon season. Mahindra & Mahindra Executive Director Pawan Goenka said: "We in the auto industry are delighted at this proactive announcement. This will give the much-needed boost to the industry as it heads for the festive season."
Industry experts also welcomed the extension of excise duty cuts. Krupa Venkatesh, senior director, Deloitte in India, said: "Welcome move for the auto sector. However, it has given rise to an inverted duty structure with regard to some inputs, which also needs to be addressed, if the sector has to reap the entire benefit of lower duties."
Though Jaitley hoped the concessions would be passed on to consumers, companies in the consumer durables sector said only the increase in their costs would be neutralised. "When it was first announced in the interim budget, prices didn't move," said Haier Appliances India President Eric Braganza, adding "I don't see any downward revision in price even now. The duty cut had simply insulated the industry from taking further price increases. That will be the case even now."
Others found it only a minor relief. "It is a relief, but only just," said Videocon Industries Chief Operating Officer C M Singh. "The rupee has breached the 60-a-dollar mark and the fear is it will get worse with the crude oil price rising, thanks to the Iraq crisis. If there was no extension in duty, it would have been disastrous for the industry."
While the consumer durables industry has contracted over the past few years on account of weak consumer sentiment and a cutback in discretionary spends, the April-June period this year has been good for it, given a hot and extended summer season. Air conditioner and refrigerator manufacturers, which have seen 15-20 per cent sales growth so far, say this is likely to continue till the end of June.
As regards the troubled capital goods sector, the excise duty reduction announced in the interim budget had brought comfort but failed to give a major impetus to order inflows, as the investment climate was yet to revive. R Govindan, vice-president (corporate finance), Larsen & Toubro, said: "The extension of duty concession is a relief to the industry. With this move, the government has signalled it is committed to boosting growth. The economy is still not buoyant but there are expectations of a turnaround. The situation should hopefully improve with continuation of the excise duty cut."
EY Tax Partner Bipin Sapra said: "Extension of excise cut for another six months for some sectors is certainly a positive move as the benefits (of such cuts) are usually reaped at least after nine-12 months. The earlier decision of providing the excise cut for three months would not have worked as it was too short a period. Also, the revenue loss is only for the short term; it will be recoverable in the long run. We expect more such sops in the coming Budget, which will boost investment and be beneficial for the manufacturing sector as a whole."