BJP government is taking pre-budget decisions. Last week, the government had announced an increase in the rail fare and freight rates in order to revive railway which is going through a tough phase and a period of loss. Continuing with the pre-budget decisions, government announced an extension in the excise duty concessions including automobiles, consumer and capital goods. Initially the duty cuts by 2-6% were announced by the Congress-led UPA government in the interim budget in February 2014 which were applicable till the end of the month. The BJP has taken the decision to extend it until December 31 to revive the manufacturing industry which in turn will provide more jobs and uplift the receding economy of the country. It has been noticed that for the past two years automobile sector has been going through a rough period.
Duty cuts are not beneficial from the revenue point of view, but the change is expected to increase the demand of the automobiles. Finance Minister Arun Jaitley stated that if duty cuts are profitable for the economy, then short term revenue loss is not a big deal.
Excise duty on small cars, motorcycles, scooters and commercial vehicles will remain at 8% whereas the excise duty for SUVs will remain at 24%. Initially it was at 12% and 30%, respectively. Excise duty on mid-sized cars is 20%. Before the interim Budget it was 24%. Excise duty on all capital goods has been cut from 12% to 10%.
Companies had passed the benefits of the cuts to the consumer by lowering down the price. This had increased the auto sales by 3.08% (1.49 lakh units) in May. As per industry experts cut in excise duty is the reason for this increase. Even the automobile industry body SIAM had recommended Finance Minister to continue with the excise duty cuts.
Major reason for administering excise duty cut is the decline in the sale of automobiles which had been noticed for the first time in the period of ten years. In 2013-14 the sales of cars declined by 4.65% (17,86,899 units). Previous year also a decline in the sale had been noticed. Often this indicates the downfall in the economy.
The decision will help the manufacturers as they can keep the same price without a change. Also after the announcement, shares of automobile companies increased in late trade. Shares of auto component maker Wheels India rose sharply.