Automobile Industry
Budget provisions
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Custom duties have been reduced from 40% to 35%.
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Budget impact
With the lowering of custom duties to 35%, imports have become cheaper. This will impact the domestic passenger car segment negatively.
Quantitative restrictions will be phased out by April 2001. This combined with the reduction in custom duties will increase competition and make price hikes by domestic companies difficult. As it is, the segment is facing intense competition from cost escalation for compliance with Euro II norms. Hence the scenario in future will be marked with lower prices, increased costs and higher competition.
Competition from cheaper imports will impact the passenger cars and two-wheeler segments more than the commercial vehicles (CVs) segment.
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Industry wish list
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Excise Duties: The automotive organisation is in favour of a three-tiered excise rate structure - 8%, 16% and 24% with a view that the government hasten the introduction of a VAT regime.
Recommended excise duty structure:
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Existing |
Recommended |
| Commercial vehicles |
16% |
No change |
| Multi utility vehicles |
30% |
24% |
| Passenger cars |
40% |
30% |
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Customs Duties: A five-tier customs duty structure has been recommended, which is as follows:
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100% - second hand and used vehicle imports
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70% - fully built new vehicles
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40% - CKD/SKD
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20% - components and intermediates
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10% - raw materials and capital goods
Further to this, it has been recommended that the special additional duty (SAD) of 4% and the 10% surcharge on customs duty be withdrawn.
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Replacement of old vehicles: As per the Supreme Court ruling non-private commercial vehicles over 15 years old are not permitted to ply on the roads of the National Capital Region (NCR). Taking this further, the SIAM has structured its recommendations in terms of Metro & state capitals, A class cities and B class cities.
Metro and State Capitals
SIAM is recommending that effective April 2000, the maximum permissible age for commercial vehicles should be reduced to 12 years and for other vehicles a 15 years bar should be introduced. Effective April 2005, it has been recommended that the maximum permissible age for commercial vehicles and other vehicles be brought down to 9 years and 12 years respectively.
A class cities
A maximum permissible age of 15 years has been recommended for commercial vehicles to be applicable April 2000. Applicable April 2005, it has been recommended that the age bar for commercial vehicles be brought down to 12 years and a bar of 15 years be introduced for other vehicles.
B class cities
SIAM has recommended that no norms be introduced until April 2005, when a bar of 15 years for commercial vehicles and 20 years for other vehicles is recommended.
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Key Positives |
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The automobile sector has benefited from the economic recovery. Demand for passenger cars and commercial vehicles have been robust. As the economy gains momentum and investment activity picks up the sector would further benefit in terms of enhanced demand.
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With the government signaling a lower interest rate regime, financing costs for vehicles have reduced dramatically. This will increase demand.
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The Delhi government has introduced measures to ban vehicles that are over 15 years old to ply on the roads. Similar measures from other state governments could stimulate demand as old vehicles are taken off the roads.
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Key Negatives |
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India, being a signatory to the GATT, has consented to reduce duties on the import of second hand cars. Given the large excess capacity that has built up in India over the last few years, the influx of imports would adversely affect the domestic automobile sector.
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Infrastructure spending continues to remain low leading to inadequate and poor quality roads. This is a key hurdle to the development of the automobile sector in the country,
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