The excise cuts announced in Monday's interim budget, which have revived hopes for an auto industry rebound, may not have been based only on economic considerations.
The excise cuts were initially perceived as well-meaning efforts of a government responsive to the plight of the ailing sector.
Now it transpires finance minister P Chidambaram may well have infused the budgetary exercise with political calculations.
The auto sector has a large presence in Tamil Nadu, Chidambaram's home state. With the Lok Sabha elections round the corner, a fillip to the industry could prove timely.
A back-of-the-envelope calculation shows that the auto industry in and around Chennai – the state capital enjoys the reputation of being the Detroit of India – will benefit by at least Rs 100-120 crore over the next four months, by way of lower excise payments. That's 30% of Rs 300-400 crore that the government is expected to forego due to excise cuts, said analysts.
Seven out of the top 20 global automotive manufacturers have a base in Chennai, offering employment to thousands. What's more, Ashok Leyland, Nissan Motor India, Renault India, the Nissan-Ashok Leyland joint venture, Ford India, Hyundai Motor India, Tafe tractors, Royal Enfield and Yamaha all have factories in Tamil Nadu. German luxury carmaker BMW India has an assembly plant in the state as well.
Other Indian vehicle-makers such as TVS and Hindustan Motors have operations in the state.
All these companies make a range of vehicles, including two-wheelers, cars, a variety of utility vehicles and commercial vehicles, all of which are beneficiaries of excise cuts.
But not everyone is convinced that Chidambaram's sudden professed sensitivity to the auto industry's problems will translate into votes come the April-May elections.
"The excise cuts are unlikely to benefit him. However, the timing (of the announcement) could have been better," said an auto consultant who did not want to be identified.
Another expert said the Index of Industrial Production or IIP, representing the entire manufacturing sector, has been dismal of late, so the government should not have been so selective about the auto sector alone.
"Why is the largesse limited to only the auto sector? We need to rev up MSMEs (micro, small and medium enterprises) as well. But no remarkable initiatives have come on that front," said another analyst on condition of anonymity.
On Monday, Chidambaram had reduced excise duty on SUVs (sports utility vehicles) from 30% to 24%. For small cars, two-wheelers and commercial vehicles, the excise duty has been brought down to 8% from the current 12%. Read the report and graphic alongside for additional details.
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