FM may roll out duty cuts for big cars

“The policy to encourage small cars stays the same, but a reduction in excise duties on bigger cars currently at 24 per cent may happen in this year’s budget,” said a government source.

While the auto industry wants an eight per cent reduction in excise duty, the finance ministry believes the demands are too high to be met. Though the government is happy with the turn of events in the small car segment after last year’s budget which propelled bigger car manufacturers like Toyota, Honda and General Motors to hasten their small car plans, another round of incentives would mean a huge revenue loss.

With 16 per cent excise duty on small cars and an expected 4 per cent cut on bigger cars, the budget will not only appease the industry which has been fuming at the introduction of differential duties but also stick to its stated policy.

In the light of an impending excise cut on bigger cars, the recent price hikes by market leader Maruti and Hyundai both small car majors is largely being seen as a protectionist measure. With no major movement on freight costs after the diesel price hike in June 2006 and steel prices remaining stable over the last one year, the hike could be to create room for a possible price reduction after budget.

“Rentals for transportation of components or finished products for auto manufacturers have not been revised off late and the price hike has not been passed on to the transporters,” said Indian Foundation for Transport Research and Training Convenor S P Singh.