India is likely to cut taxes on cars and utility vehicles in its 2003-04 Union Budget to be unveiled on Friday, boosting demand for the small but potentially fast-growing industry, analysts said.
They said they expected Finance Minister Jaswant Singh to cut excise duty or production tax on cars and utility vehicles to 24 per cent from 32 per cent as part of an overall tax reform plan.
The Society of Indian Automobile Manufacturers, which represents over 40 vehicle makers in India, has asked the government to halve the excise duty to 16 per cent.
"I expect the excise duty to be cut to 24 per cent," S Ramnath, auto analyst at Taib Securities, said.
"India could become a great car story if that happens and my guess is that it could boost demand at least 12 per cent in 2003-04."
The industry body said more than 65 per cent of the sticker price of a car now is made up of taxes and other levies.
In December, an Indian tax panel had recommended that the government cut excise tax on motor vehicles to 20 per cent but analysts said that the government would hesitate to go so far because it faces a big fiscal deficit.
"We don't expect it to drop below 24 per cent given the current fiscal situation," an industry official said.
Sales of cars and utility vehicles combined in India, the world's 12th largest economy, grew by 6 per cent in April-January, the first 10 months of this financial year.
An industry official said that an 8 percentage point cut in excise duty would translate to a 5.5 per cent drop in a car's showroom price.
India's high auto tax rates restrict the size of the car market in the country of more than a billion people. Its 15 vehicle makers sold only 689,830 cars and utility vehicles in the past year to March even though vehicle penetration is low.
Only four of every 1,000 Indians own cars, compared with 35 in Thailand, 92 in Brazil, 187 in South Korea and 450 in the developed world.
India's top rating agency has forecast that car demand will jump nearly 30 per cent if taxes are halved. An economic think-tank estimates car demand will grow by 10 per cent a year in the next decade, helped by rising incomes and low penetration.
Run-up to the Budget 2003
