The government on Friday proposed to bring down the excise duty on passenger cars from the existing 32 per cent to 24 per cent, a move that is likely to help reduce the end consumer price of cars from between 5.5 per cent to 7 per cent- a Rs 10,000 drop on the A-segment Maruti 800 and a Rs 17,000 drop on the B-segment cars.
Unlike the Budget two years ago, this time, the excise duty cut is applicable on utility vehicles as well. Excise duty on electric vehicles has been proposed to be brought down from the current 16 per cent to 8 per cent, which will make vehicles like Maini Motor Company's Reva and Mahindra & Mahindra's three-wheeler Bijlee more affordable.
Peak rate of customs duty has also come down in the Budget. It will now be 106 per cent of CBU imports as against the effective duty of 120 per cent currently since CVD will now be based on 24 per cent excise instead of 32 per cent.
At least one car maker on Friday announced it will launch an imported vehicle next week, and many more launches can be expected in the next few months.
On the excise front, at current rates taking into account the one per cent additionally levy in the form the National Calamity Contingent Duty, the prices are expected to fall 5.5-7 per cent.
Prices in the more premium segments (say the Sonata) will come down by Rs 30,000. This, combined with the fact that the disposable income may actually increase because of changes in the income tax levies, may change the course of the auto industry which has been growing at over 5 per cent in the last year, and prompt more and more consumer switch their choice to higher end vehicles, automobile experts said.
Cost of inputs such as tyres, which is expected to be cheaper by around 6 per cent, will also come handy.
Leading car-makers said that they would pass on the price benefits to the consumer, but it remains to be seen whether the dealers who have been giving away huge discounts in the past few months will be in a position to pass on the price benefits completely.
A leading car dealer said, "We do not have any option since this is an extremely competitive market." Maruti Udyog managing director Jagdish Khattar said he would pass on the entire benefit to the consumer.
"The reduction can be at best 5.5 per cent," he added. Hyundai Motor president, B V R Subbu said that the exact impact of the Budget will be known only after reading through the fine prints.
As of now, it seems that the price of the Santro is expected to come down by around Rs 17,000 and the upper-end cars by as much as Rs 30,000.
Tractor manufacturers feel the sector, which is in the midst of a crisis currently, will also benefit in the long run due to the focus on agricultural sector.
Bharat Doshi, executive director, M&M, says the increase in service tax from 5 per cent to 8 per cent is a "surprising element". "We do not have a full VAT system in place and therefore the consumer will have to bear the ultimate impact of this substantial increase," Doshi said.
Officials at the Society of Indian Automobile Association welcomed the excise duty reduction. "This was one of our demands. We had said that the excise should be reduced to 24 per cent, if not 16 per cent," said an official.
SIAM president R Seshasayee, who is also managing director of commercial vehicle manufacturer Ashok Leyland, welcomed the government's decision to levy excise duty on the body building activity by the organised sector.