Prices of two-wheelers, cars, sports utility vehicles (SUVs), refrigerators, television sets and other consumer durable items may go down as the government has cut in excise duties to boost the consumer demand.
Finance minister P Chidambaram as part of the interim budget tabled on Monday announced cut in excise duties to boost the consumer demand.
Excise duty on two-wheelers, small cars and commercial vehicle has been proposed to bring down to 8% from 12%, while duties on SUVs will be brought down to 24% from 30% and mid-sized cars like sedans will attract 20% duties from 24% now. Which means that the manufacturers of these vehicles may decide to pass on the benefits of the slashed duties to the end consumers.
While automakers hiked prices of cars and two-wheelers in January this year to offset high input costs on account of rupee depreciation, sales have remained slow for almost two years on account of high interest rates, rising fuel prices and overall slowdown in the economy.
The industry expects the reduced duties to help in reviving in demand.
"The cut in the excise duties indicated in the interim budget 2014 has extended a much needed relief to the auto industry in India. We hope that the industry starts to revive on this positive note," said N Raja, senior vice-president, sales and marketing, Toyota Kirloskar Motor.
After the budget announcement, Tata Motors, Hyundai and General Motors said they would cut prices.
Not only cars and bikes but the prices of refrigerators, washing machines and air conditioners may go down a little. With the 2% reduction, the excise duty on consumer durables will be at 10% from the new financial year.
Consumer durable players see it as a welcome move, however this reduction is unlikely to translate into huge discounts for the consumers. Most of the players are on a wait-and-watch move and if the need arises they will cut prices by not more than 1.5%. If we take the average ticket size to be Rs 30,000 it translates into a discount of only Rs 450.
Kamal Nandi, executive VP, sales & marketing, Godrej Appliances, said, "A 2% drop in excise duty against the average price increase of 10-12% over the last two years may not propel growth in the appliances industry."
On the back of depreciating rupee and rising raw material cost consumer durable players had taken three-four rounds of price hike in the last two years.
Therefore, this move may give some relief to the consumers but is unlikely to improve demand as the government would have had wanted. A report by India Ratings & Research said, "Index of Industrial production for the consumer durables industry declined 12.9% year on year during April-December 2013 as against 3.7% yoy in the same period last year. This is because high interest rates and high consumer price index continue to plague the sector."