A task force set up by the heavy industry department will examine the definition of "small car" and suggest ways, including changes in the fiscal policy, to turn India into a manufacturing hub for such cars.
This comes after Finance Minister P Chidambaram announced at the beginning of this month that the tax regime for small cars would be reviewed.
At present, an excise duty of 24 per cent is levied on all cars. Chidambaram had said at the annual general meeting of the Society of Indian Automobile Manufacturers on September 2 that the government was contemplating changes in the tax structure for automobiles to encourage the production of small cars in the country.
Though the terms of references of the task force, constituted on September 6, did not spell out that it would review the tax regime for small cars, officials said the six-member panel, headed by heavy industry secretary Priyadarshee Thakur, would suggest ways to provide a fillip to small car manufacturers.
The Auto Policy of 2002 defines a small car as one which is 3.80 meters long, or less. The task force, however, would examine if the definition should be altered for cars with an engine capacity of up to 1000 cc, officials in the heavy industry department told Business Standard.
If the definition is altered, the Maruti 800, the Alto Lx, the Alto Lxi and the Zen will be the immediate beneficiaries. But, Maruti's other offerings, including the WagonR and the recently-launched Swift, may not be eligible for tax benefits that may be made available to small cars.
Similarly, the Fiat Palio, which is available in two variants of 1,300 cc and 1,600 cc, the Tata Indica (1,400 cc), the Opel Corsa (1,400 cc and 1,600 cc) and the Hyundai Santro (1,086 cc) may be at a competitive disadvantage.
Industry analysts said fiscal incentives for small cars were being offered in important car markets like Japan, Brazil, Thailand and South Korea.
For instance, Japanese cars with an engine capacity of under 660 cc are entitled to tax incentives, while in Brazil, the government encourages the production of under-1,000 cc cars through tax sops.
India is the world's third largest market for small cars, with the segment accounting for 73 per cent of the domestic market. Indian automobile manufacturers complain that they suffer from manufacturing cost disadvantage of 15-20 per cent due to systemic deficiencies.
The task force will formulate a 10-year mission plan called Decadal Mission Plan 2005-15 to strategise and prescribe policy measures for passenger cars, commercial vehicles, auto components and two-wheelers and three-wheelers.
The task force will also identify and address bottlenecks, arising out of the existing policies in the auto sector. Outsourcing opportunities for export of automobiles and components will be explored. A blueprint for the "Made in India" brand will also be developed.
An institutional mechanism for harmonising Indian automotive standards with global standards will be established. It will seek to upgrade the infrastructure for auto research and testing.
The task force includes representatives from the Society of Indian Automobile Manufacturers, Automotive Components Manufacturers' Association of India and Tractors Manufacturers' Association. Bijon Nag, chairman, IFB Automotive Private Ltd, and the joint secretary in charge of the auto division in the heavy industry department are the other members.
Car-rying costs
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At present, an excise duty of 24 per cent is levied on all cars
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The Centre is mulling changes in the tax structure for automobiles
- The task force will suggest ways to provide a fillip to small car manufacturers
