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Demand may stay on slow track

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BS Reporter

Measures do not tackle low sales; exports too largely untouched.

Automotive players who were looking forward to some relief from falling demand for cars, utility vehicles and commercial vehicles were disappointed today when Finance Minister Pranab Mukherjee made no announcement that would drive the customers back to the showrooms.

Mukherjee today reduced the excise duty on petrol-driven trucks, used mainly within cities and across short distances, to 8 per cent from 20 per cent earlier. Diesel-driven trucks already attract an 8 per cent duty. Further, the additional excise duty introduced last year on sports utility vehicles (SUV), multi-purpose vehicles (MPV) and sedans having an engine capacity of more than 2,000cc has been reduced to Rs 15,000 from Rs 20,000. As a result, all passenger vehicles having an engine capacity of more than 1,500cc, irrespective of the type of fuel, will be charged an additional Rs 15,000, which is over and above the 20 per cent excise duty levied on them.

 

Ashok Leyland CFO K Sridharan said, “It is very doubtful that any manufacturer will go for petrol engine trucks due to the differential pricing between petrol and diesel. The broad contours of the reduction in duty is done to wipe out the imbalance in the tax structure.”

Petrol, being costlier than diesel by nearly 33 per cent due to the heavy subsidy provided by the government, deters most manufacturers from developing petrol-based engines for commercial vehicles including trucks, experts said.

Currently no commercial vehicle manufacturer such as Tata Motors, Ashok Leyland, VE Commercial Vehicles and Mahindra & Mahindra sell trucks with petrol engines.

Auto players were disappointed that the additional excise duty laid down by Mukherjee in June last year targeted at discouraging buyers of bigger vehicles like sedans, SUVs and MPVs, was not done away with in this year’s Budget.

Pawan Goenka, president (automotive sector), Mahindra & Mahindra said, “My biggest disappointment in the Budget was the stay on the additional excise duty which we expected would be abolished. Even though a uniform tax is introduced instead of the earlier differential, the impact on the sales will still continue.” Furthermore, the finance minister also announced an extension to the current provision of weighted deduction of 150 per cent on expenditure incurred on in-house research and development (R&D) to all manufacturing business (except small negative list) including the auto sector.

The auto sector companies welcomed the move stating that this will further boost the in-house R&D activity hereon. Most automotive companies invest about 2 per cent of their top line on R&D.

Manufacturers were also hoping that favourable measures would be taken regarding the export of vehicles from India, a sector which has seen a tremendous revival post the downturn in the European region. However, the area was largely untouched in the budget. Arvind Saxena, senior V-P (marketing and sales), Hyundai Motor India said, “We were expecting something in the export segment. However, auto has been virtually untouched. The recent hike in exports was due to the measures taken by European countries who were promoting the sales of small cars. As soon as these measures are taken off, then exports from India will also slump.”

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First Published: Jul 07 2009 | 3:02 AM IST

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