Almost two weeks before the first Union Budget scheduled to be announced by the new government, the finance minister on Wednesday sprang a surprise by retaining the excise cut benefits, which were due to expire on June 30.
Finance minister Arun Jaitley on Wednesday afternoon announced the decision to continue with low excise duty till December 31 for automobiles, consumer durables and capital goods sectors, which are facing challenges due to weak sales and subdued economic growth.
The auto industry has cheered the government's decision to extend the duty-cut benefits. The duty cuts on small cars, two wheelers and commercial vehicles (CVs) (which ranged 8% to 12%), on large and mid-segment cars (which saw the excise duty slashed to 24% from 27% and 20% from 24% earlier respectively) will continue till December-end. Similarly, a duty cut on sports utility vehicles that were reduced by 6% to 24% will also be continued for next six months.
The earlier announcement in February by the previous finance minister P Chidambaram had breathed life back into the sector that has been reeling under slowdown for 2 years. Following the duty cuts in February, auto companies passed on the benefits to the consumers, making vehicles more affordable.
Fearing that the duty could be rolled back that was coming to an end by June 30, some automakers were in the process of increasing the prices of the vehicles.
Vikram Kirloskar, president, Society of Indian Automobile Manufacturers (SIAM), said in a statement,"We are certain that the extension of the reduced excise duty will contribute positively to improve the buyer sentiment and would help in bringing about a sustained recovery in the automotive industry that has been languishing for over two years now. This will go a long way in bringing back growth, investments in the industry as well as encourage higher employment."
Pawan Goenka, executive director, Mahindra & Mahindra, said in a statement, "This will give the much-needed boost to industry as we lead up to the festive season".
The finance ministry will announce its first budget on July 10 and maintaining the reduced excise duty was the key expectations of the industry. "We hope government will extend it for the full year in the upcoming budget as the sector continues to be sluggish. We also expect government to announce other measures in the Budget to revive growth," said Arvind Saxena, president and managing director, General Motors.
Similarly, excise duty status-quo on consumer durables and capital goods sectors will continue to attract a lower duty structure. Anirudh Dhoot, president, Consumer Electronics and Appliances Manufacturers Association (CEAMA) and director, Videocon, said the reduction of excise duty in the interim Budget from 12% to 10% on products, inputs and parts had come as a great relief for the industry and helped the sector.
"CEAMA would request for this continued support even beyond December 2014 as the industry is still struggling and Index of industrial Production has not shown a healthy growth," Dhoot added.
Sanjeev Agarwal, sales head, LG India, said, "The move will certainly boost industry".
According to Krishan Sachdev, managing director, Carrier Midea India, the extension of excise duty will help the industry overall. "The air-conditioning industry has shown growth this season and this measure would further strengthen the positive sentiment of the industry," he said.