For the auto industry, the reduction in excise duties which finance minister P Chidambaram announced on Monday in order to revive demand was a much-awaited relief.
"To give relief to the automobile industry, which is registering unprecedented negative growth, I propose to reduce the excise duty up to June 30, 2014," Chidambaram announced.
Increasing fuel prices, high interest rates and overall economic slowdown have severely hit the industry as capacities of most manufacturers are untilised and some are deferring investment plans. In fact, the automobile industry was fearing a negative growth this financial year (FY14).
As per Society of Indian Automobile Manufacturers (SIAM) data, for the first 10 months of this fiscal, car sales declined 5.2% to 1.45 million.
On Monday, Chidambaram reduced excise duty on small cars, two-wheelers and commercial vehicles (CVs) to 8% from 12%. Duties on large- and mid-segment cars were reduced to 24% from 27% and 20% from 24%, respectively.
The big boost came for sport utility vehicle (SUV) manufacturers, with a 6% duty cut from 30% to 24%. Duties on SUVs were increased by 3% (to 30%) in last year's budget.
The industry, which has been seeking for a stimulus, immediately welcomed Chidambaram's decision.
SIAM president Vikram Kirloskar said, "SIAM would like to thank the Finance Minister for recognising the need for a more moderate tax structure and for accepting SIAM's tax-related recommendations."
"We believe this would reduce the acquisition price, making vehicles more affordable and improving consumer sentiment. This will hopefully revive demand for vehicles," he added.
"The budget announcements should boost demand. If these initiatives are maintained in the final FY15 budget, it should be a much-needed positive stimulus for the overall manufacturing sector in India," said Pawan Goenka, executive director & president (AFS), Mahindra & Mahindra.
Tata Motors, Maruti Suzuki and Nissan have already indicated reduction in prices of cars, by passing on the benefit to consumers. "Nissan customers would enjoy the benefit of excise cut for its cars, Micra, Micra Active, Sunny, Terrano, Evalia and Teana models," said Nissan Motor India.
On being asked about the timing of the move, Chidambaram said, "What might have been is what might have been. We hope the economy will pick up. There have been negative growth in some of the sectors.
The ground data also comes late."
On the losses to the exchequer on account of the excise giveaways, he said, "In the next 40 days, we will lose about Rs 300-400 crore. What we are losing in terms of revenues, we will gain in terms of volumes, if car sales pick up," he added.