Millennium Post

New Year shock: Modi Govt to discontinue excise duty sops

New Year shock: Modi Govt to discontinue excise duty sops
Come New Year, the prices of automobiles and consumer durables will go up as the government on Tuesday decided not to extend the reduced excise duty rates provided to these sectors beyond 31 December.

"The government is not extending the excise duty concessions on the auto sector and consumer durables," a senior finance ministry official said.

The move is expected to help the government raise additional revenue in the remaining three
months of the current financial year to achieve the fiscal deficit target of 4.1 per cent of GDP.

The previous UPA government, in order to boost the two sectors that were struggling in the wake of economic downturn, had cut excise duty on cars, SUVs, two-wheelers and consumer durables in the interim Budget in February.

Excise duty on small cars, scooters, motorcycles and commercial vehicles was reduced to 8 per cent from 12 per cent previously. For SUVs, it was cut to 24 per cent from 30 per cent; for mid-sized cars, to 20 per cent from 24 per cent and to 24 per cent for large cars, from 27 per cent.

In the consumer durables sector the excise was reduced to 10 per cent from 12 per cent. In June, the new government led by Prime Minister Narendra Modi extended the excise duty concessions by 6 months to December 31, which is now not being further extended.

While companies are still awaiting a formal communication and working out on the subsequent details of price hike, Honda Cars India Senior Vice-President (Marketing and Sales) Jnaneswar Sen said: "Prices will go up as a result of this decision. This move will also impact demand in the short term."

Expressing similar views, Maruti Suzuki India Chairman R C Bhargava said: "It is a government decision. We don't have any option but to accept it. It will have an impact on sales. I believe sales will slow down in the short term due to this development."  Consumer durables makers also said that the government's move will force them to pass on the burden to customers and that will hurt sales.

"With an increase in excise duty, all industry players would be forced to increase prices," Consumer Electronics and Appliances Manufacturers Association Eric Braganza said.

"We were expecting good sales in the first quarter of 2015, but this roll back will dampen spirits of customers, added Braganza, who is also Haier India's President.

Expressing similar views, Whirlpool of India Vice President (Corporate Affairs and Strategy Asia South) Shantanu Das Gupta said: "Pre-budget representations for continuing the current rate of excise duty made by several industry associations have not been considered. Our industry was looking forward to the cut being extended as concerns remain over growth."

In the auto sector, the hike in excise duty may result in an increase in prices of entry level cars like Tata Nano, Maruti Alto800 and Hyundai Eon — currently tagged from Rs 1.97 lakh to Rs 4.03 lakh (ex-showroom Delhi) — by Rs 7,900 to Rs 16,000. Popular premium hatchbacks like Maruti Swift and Hyundai Elite i20, which are available in the range of Rs 4.42 lakh to Rs 7.66 lakh (ex-showroom Delhi), could see price increases ranging between Rs 17,700 and Rs 30,600.

After two successive years of sales slump, the auto industry had shown growth of 10.01 per cent in April-November period this fiscal at 1.33 crore units as against 1.21 crore units in the year-ago period. Car sales in India rose by 9.5 per cent in November riding on continued relief in excise duty and lower fuel prices, after declining for two months in a row.
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