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Auto industry expects excise relief in Budget

Neena Haridas in New Delhi

The long-drawn tussle between India's Ministry of Finance and the automobile industry is likely to end on a logical note in the coming Union Budget.

According to government officials, Finance Minister Yashwant Sinha is considering reducing the excise duty on passenger cars and custom duty on auto components in his bid to make the industry globally competitive.

Senior government officials suggest that there is a good case for a reduction in the excise duty on cars which is now charged at 40 per cent, the highest in the world.

"There may be some revenue implications in case of a reduction in excise duty but this will be more than offset by a possible increase in sales," officials said.

The Association of Indian Automobile Manufacturers for long has been demanding the lowering of excise duties on passenger cars, multi-utility vehicles and two-wheelers, stating that the present level of 40 per cent to 30 per cent is too high.

Rajat Nandi, president, AIAM, said that the high level of duties hampered the growth of automobile market in India. "Besides, the various duty levels in different states also needed to be sorted out," he said.

The issue of high excise duties is gaining importance among the industry circle, following the government's move to lift quantitative restrictions by March 31, 2001 on the remaining import items which include new as well as second-hand cars.

Similarly, government officials feel that imports of components, which are locally manufactured, should attract higher rates of customs duty while those which are not manufactured indigenously should be subject to lower rates.

In both ways, the measure will give adequate protection to the domestic industry. At present, the rates on most auto components is charged at 40 per cent and on some at 15 per cent or 16 per cent.

The other option could be to introduce a differential duty structure for used-car imports, which means impose a higher customs duty on the used car "which would decrease its attractiveness to the customer".

Another option which the government is likely to consider is not to allow import of left-hand drive vehicles as India is a right-hand drive market. This would have to be done at the point of entry.

"The company or agency will not find it lucrative or viable to import left- hand drive vehicles and set up a plant for only changing them to suit Indian road conditions," said auto expert Murad Ali Baig.

In case such changes in the duty structure are not possible due to revenue implications, the government is not keen to allow import of second-hand cars from April 2001, officials said.

"Instead, only import of finished vehicles and completely built units may be allowed from next year," he added.

Another government official said, "We cannot let the domestic automobile industry, which has been the country's biggest source of foreign direct investment in the last few years, suffer on account of import of second-hand cars."

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