Fineprint in budget leaves auto companies worried

After the euphoria, a call to reality for Motown.

A day after the budget announcements, the Society of Indian Automobile Manufacturers (SIAM) has discovered that though finance minister Pranab Mukherjee spared the industry any excise hike, the budget fine print has a lot for the industry to worry over.

To begin with, a convoluted sentence in the budget provisions could mean a massive increase in duty payable for completely knocked down (CKD) kits, which include pre-assembled engines or gearboxes for either cars or two-wheelers.

At first glance, this provision could impact assembly operations of luxury car makers such as BMW and bike makers such as Harley Davidson.

Officials of Honda Siel Cars India, Hyundai Motor India and Toyota Kirloskar Motors appeared confident that this provision is unlikely to impact them since they assemble engines in India.

But SIAM president Pawan Goenka told DNA, “This provision appears restrictive and we will be seeking clarifications.”

The industry is apprehensive that if a CKD operation is done by importing pre-assembled chassis, transmission or gearbox, it will be charged over 100% import duty against just 10% now.

Another provision that could impact some car makers in a big way relates to the excise duty refund currently available to large cars, which are used as taxis.

As of now, sedans and SUVs which are registered as taxis pay excise duty of 22% plus an additional Rs15,000, but get back a refund of 12% and Rs15,000. This refund amount is being lowered substantially, to 4.4% and Rs3,000. “This means a net negative impact of about 8%. A lot of companies which sell significant numbers in the taxi segment would be hit,” said an industry official.

Car companies are usually reluctant to admit that some part of sales of some of their models happens in the taxi segment and therefore not many company officials were forthright in admitting that the reduction in excise refund would impact their overall sales.

Toyota’s Deputy MD Sandeep Singh said this provision will certainly impact the business of taxi owners and transporters but “may not impact our sales much. Innova earlier used to sell in large numbers in the taxi segment but now sells more in the corporate and individual segments.”

A Honda official also said the taxi segment did not account for a large chunk of his company’s sales.

A Tata Motors spokesperson declined comment on the matter.
For Maruti Suzuki India, the impact is likely to be felt in sales of SX4 and Dzire sedans to fleet operators.

The budget provides some relief for small cars plying as taxis though. Earlier, these taxis were not getting any excise refund but will now get 2%.