Budget 2013: Impact on the Auto Sector

In his budget speech, Finance Minister P Chidambaram announced a number of changes in excise duty and import duty structures for a few segments of the market. The biggest hit obviously being the hike on all SUVs which will now attract an excise duty rate of 30 per cent as opposed to 27 per cent previously, except for SUVs bought to be used as taxis. The import duty on fully built cars has also been increased steeply from 75 per cent to 100 per cent while the import duty on motorcycles above 800cc has gone up from 60 per cent to 75 per cent.

Justifying his decision on hiking the excise duty for SUVs, Chidambaram stated that SUVs take up more space and are not as fuel efficient as other vehicles, therefore the subsequent increase. Interestingly, the industry was asking the government to slash the excise duty on SUVs from 27 per cent to 22 per cent, but matters seem to have gone the other way around.  SUVs have been one of the fastest growing segments in India and while the auto industry overall has been posting a slowdown, the SUV segment has continued to draw in the numbers.

On the ground, the effective change in price of an SUV will be affected by 3 per cent. In the overall scheme of things, this might not be much of a deterrent towards the purchase of an SUV, which hints strongly towards the fact that the government has played it rather safe with the industry.

The major segments, namely the hatchback and entry level sedan segments have not been touched. The industry did want the excise on small cars to be further reduced from 12 per cent to 10 per cent, however that has not been the case and any change on this front isn’t expected anytime soon.

The Finance Minister didn’t allocate any change in duty or excise structure for CKDs either, which means that most of the high end cars sold in the country are also unaffected.

The change towards high end import models is a solid 25 per cent hike, however this targets a very small portion of the industry and isn’t’ a decision that can hamper the overall growth of the auto sector. 

As for high end motorcycles above 800cc, the change is substantial, however the segment is so small that it has little or no effect on the overall industry projections.

The Finance Minister has however extended the subsidy benefits for electric cars till FY-15 which should help in getting this nascent industry moving.

Overall, the objective of this budget seems to be devoid of any major change and from the looks of it the government is playing their cards safe until the elections.  The auto industry expected more in terms of excise cuts across segments in order to boost growth as the auto industry is facing a steady slowdown and is in need of some tax and duty derived impetus to bring about the change.