Especially for the entry-level price conscious automobile models, the decision would continue to be largely influenced by the cost of ownership which remains high due to high interest rates as the repo rate has been revised to 8% from 7.25%. Simultaneously, the de-regulation of diesel prices effective from April 2013 has resulted in deferral of purchases. Diesel vehicles were the volume drivers in the car segment in FY12 and FY13 after the deregulation of petrol prices in June 2010.
Although the excise duty cut is significant especially for small truck operators, demand for such vehicles is influenced to a greater extent by the level of industrial activity, which remains weak. Index of Industrial Production declined yoy during October-December 2013. With the index continuing to register a decline in December 2013 (0.6% yoy), freight rates remain depressed. Also, as average freight rates remain subdued, a significant uptick in demand is unlikely in the near term.
The Finance Ministry has announced a reduction in the excise duty on small cars and two wheelers to 8% from 12%, on small utility vehicles to 24% from 30% and on mid-size cars to 20% from 24%. Excise duty on commercial vehicles has been reduced to 8% from 12% and for large and mid-segment cars to 20% from 24%.
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