2012 Budget: What it means to the layman

Your dreams of owning a new car just received a severe blow with Finance Minister Pranab Mukherjee announcing an increase of 2 percent in excise duty – from 22 percent to 24 percent while tabling the Budget 2012. Car makers, in turn, plan to pass on the entire burden on to the common man, effective midnight today. Diesel car buyers can heave a temporary sigh of relief though as the much dreaded tax on diesel vehicles has not been imposed yet. 

Maruti, Honda and M&M have already expressed their intent on increasing prices. Companies are still working out the math but the duty hike is set to hurt buyers of cars in all segments. Prices of small cars like Maruti Suzuki Alto and Swift, Hyundai i10 and i20, and the Tata Indica will go up between Rs 4,000 and Rs 20,000 depending on the model.

Prices of large cars like Honda City, Toyota Camry and SUVs like the BMW X1 and Audi Q1 will stand to be affected even more. The FM has slapped an ad valorem duty of 27 percent on cars with length exceeding 4 metres and engine displacement of over 1,200cc in case of petrol cars and 1,500cc in case of diesel vehicles. Hence, buyers will need to shell out an additional Rs 35,000 to Rs 2 lakh on these cars.

Reacting to the excise duty hike, SIAM President S Sandilya said, “While the auto industry appreciates that there was a compulsion to increase base rates of service tax and excise duty, the industry had hoped that the excise duty on large cars would have come down from 22 percent to 16 percent  rather than going up. The 27 percent excise duty will increase tax significantly for large premium cars.”

High-end executive cars like the Audi A8, BMW 7-Series or the Mercedes S-Class will be dearer by around Rs 4 lakh depending on the variants. Mercedes has already announced an increase in prices by Rs 3 lakh on its models. And those considering importing a Lambo or Porsche 911 Carrera, will be left with a bigger hole in their wallets, with customs duty on CKD vehicles being raised to 75 percent from the existing 50 percent. That's almost Rs 13.83 lakh extra if you are to buy the Porsche 911 Carrera, which otherwise costs Rs 92.26 lakh. 

Industry Reaction

Lowell Paddock, President and Managing Director of General Motors India expressed his disappointment with Budget 2012 saying, “As far as the automotive industry is concerned, it did not meet the expectations. The industry did not expect any increase in excise duty on passenger cars. In fact, the industry expected the government to announce   some other measures to fuel demand of vehicles which have also not happened.  This was essential as the automotive industry makes a significant contribution to the growth of the economy which continues to remain sluggish.”

Audi India Head Michael Perschke said, "The increase in excise and customs duty on large cars in this budget is very surprising. This increase comes at a time when the Indian automotive industry was finding favor with customers looking for better and efficient cars. We may now need to re-evaluate our pricing strategy in India."

Amid the gloomy scenario, in case you're considering giving up driving all together, choosing to cycle instead, here's the ultimate bummer – duty on bicycles, too, have been increased by 3-4 percent.