The 2013 Indian budget and how it affects the automobile sector

The 2013 Union budget gives a carrot to businesses and a stick to businessmen (or anyone rich enough to buy an imported car). Commercial vehicle manufacturers will get a new lease of life in the M&HCV segment with the Finance Minister P Chidambaram allocating Rs 14,883 crore for the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in the next fiscal year. The segment has been in the doldrums for a while now due to a multitude of reasons. The number of players in the segment is growing so it is certainly a good budget for a large number of people directly or indirectly affected by the JNNURM project. Buses will benefit from the JNNURM scheme too. S Sandilya, President, SIAM said, "The gesture of allocating double the funds under JNNURM scheme enabling substantial part for purchase of up to 10 thousand buses is appreciated. This was needed for the revival of the CV sector."

Carmakers selling full imports are fuming at the sharp hike in import duty from 75 to 100 per cent. The segment has been growing steadily due to strong sales from JLR and Audi but with such a steep hike, these carmakers will have no choice but adopt the CKD route for a majority of their models. Volvo sells all its cars as CBUs in India. The company will have to rethink its strategy post-budget. JLR has started assembling the XF in India, and the XJ is next in line to escape the heavy import duty rates. Majority of luxury cars that aren't feasible as CKDs due to low volumes will be priced out of contention and that worries premium manufacturers as they will have to revise their growth predictions and consequently their plans to expand in India. Commenting on the impact of rise in import and excise duties, Michael Perschke, Head, Audi India, said, "The increase in Customs Duty for imported cars and Excise Duty on SUVs is surprising. It will severely impact the auto industry and its growth. We have no choice other than to pass on the increase to the customer."

The FM hasn't spared motorcycles over 800cc too and has hiked their import duty from 60 to 75 per cent. Ashish Chordia, chairman, Shreyans said, "The increase in import duties on CBUs and bikes over 800cc is going to affect the growth of the automobile industry. A move which provided impetus to the industry, already under pressure, was needed."

Another major setback to the industry is the rise in excise duty from 27 to 30 per cent for SUVs and MUVs. Last year, UVs were categorized into a different slab from larger than 4-metre by increasing their excise duty from 22 to 27 per cent. Despite that, SUVs have continued to grow at 56.87 per cent between April and January this financial year. About 451,935 units were sold this year compared to 288,093 units during the same period last year. This steep increase in sales due to a few successful SUV launches has prompted the finance minister to rake in more duty for the government coffers. Compact SUVs like the Rio, Quanto and the upcoming EcoSport will not be affected by this hike as they do not qualify under the traditional SUV description of over-4 metres, 1500cc for diesel engines and 1200cc for petrol engines. Taxis and fleet operators will not face this hike in excise as they have been exempted from the excise hike.

But despite thumbs down by industry analysts and car manufacturers on a majority of announcements, there have been a few positives too. Lowell Paddock, president & MD of General Motors India, said, "The intention to further promote the development of infrastructure, particularly in rural areas, is a positive step." His counterpart, Takayuki Ishida, MD & CEO of Nissan Motor India said, "The 2013 budget is a 'budget in motion' as it continues to focus on growth in primary sectors. This growth will in turn support the growth in other sectors including the automobile industry."

Ishida added, "We are happy about the investment allowance of 15 percent for investments above `100 crore as a tax incentive. We are also happy about the Chennai - Bengaluru Industrial Corridor to be developed jointly by the DIPP and JICA. This corridor will play an important role in terms of logistics for companies like ours which are present in the said region."

The FM did not extend subsidy for Electric cars which goes against the decision to penalize gas guzzlers and large vehicles and promote cleaner vehicles. This will affect the soon to be launched Mahindra E2O that will lose its competitive edge to traditional compact cars.

Lastly, second hand imported cars will get a major setback with the FM's proposal to increase import duty from 100 to 125 per cent. SIAM's Sandilya commented, "It clearly conveys that India is not ready to accept second hand old vehicles from other countries."