Car and two-wheeler manufacturers have heaved a sigh of relief after Finance Minister Pranab Mukherjee proposed to maintain the excise duty at present levels while inviting companies to step up investments in the sector.

The Indian automotive market, the second-fastest growing in the world, recorded a 31 per cent jump in sales (14.82 million units) last year, leading market watchers to believe that excise duty could be restored to its earlier levels.

Excise duty on compact and large cars, utility vehicles, two-wheelers and commercial vehicles (CVs) was raised by two per cent last year following robust growth in automotive sales in the previous year.

Keeping in mind the high base of last year, the Society of Indian Automobile Manufacturers expects sales to grow 15 per cent to more than 17 million units.

Maruti Suzuki chairman R C Bhargava said, "It's definitely a positive move by the finance minister to keep the excise duty unchanged. A rate increase, coupled with steeper interest rates and high inflation, would have hurt demand as there would have been far less disposable income in buyers' hands."

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Mukherjee, in his speech said, he had chosen not to raise the excise duty as this would mean improved business margins resulting into better investment rates and also because of the upcoming goods and services tax.

The Union Budget has also brought relief to manufacturers of hybrid and electric vehicles through a cut in the Customs duty.

Batteries imported by electric vehicle manufacturers for the replacement market will now be exempted from the basic Customs duty and a four per cent concessional rate of central excise duty will be charged.

Moreover, specified parts of hybrid vehicles are now exempted from the basic Customs duty and special countervailing duty. In addition, a concessional rate of five per cent excise duty is being prescribed to incentivise their domestic production.

Further, a National Mission for Hybrid and Electric Vehicles will be launched to encourage manufacturing and selling of the alternative fuel-based vehicles.

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In November last year, the government had announced a Rs 95 crore (Rs 950 million) incentive package for the electric vehicle makers for the remaining part of the 11th Plan.

Reacting to the proposals, Society of Indian Automobile Manufacturers president Pawan Goenka said: "This is a very welcome move. It will allow advanced technologies to be developed in India rather than importing technology".

Society of Manufacturers of Electric Vehicles president Naveen Munjal welcomed the move, saying that the industry will be encouraged by such steps.

"The government is finally realising the importance of electric and hybrid vehicles in the Indian automotive sector.

This is bound to give a huge boost to the sector once the final policy is formulated," Munjal said.

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Giving a boost to other alternative fuel-based technologies, the government also announced to incentivise products based on hydrogen cells.

"Fuel cell or Hydrogen cell technology is a promising green technology for the automobile sector. I propose to extend the concessional excise duty of 10 per cent to vehicles based on this technology," Mukherjee said.

Auto stocks zoom

Meanwhile, auto stocks rose by over 4 per cent in early trade on the Bombay Stock Exchange on Tuesday, bolstered by the government's move to keep the central excise duty rate unchanged.

Shares of Bajaj Auto went up by 4.62 per cent to an early high of Rs 1,327 on the BSE, becoming the top gainer among the BSE 30-Sensex stocks.

Market observers termed the Budget as positive for the automobile sector.

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"Overall, the Union Budget 2011-12 is positive for the automobile sector as central excise duty has been kept unchanged. Further, special incentives have been announced for companies manufacturing hybrid vehicles in India," Angel Broking said in a note.

"Moreover, broader measures like increased focus on rural and infrastructure spending would support long-term growth of the sector," it said.

Auto bluechips attracted the most attention in early trade on the BSE. Another major gainer was Mahindra & Mahindra, which rose by 3.98 per cent to touch an early peak of Rs 638.60.

Tata Motors, Hero Honda and Maruti Suzuki also saw heightened buying interest from investors. Tata Motors rose by 3.43 per cent, while the country's biggest car-maker Maruti gained 2.26 per cent and two-wheeler giant Hero Honda 2.22 per cent.

Similarly, TVS Motor Company soared by 6.60 per cent to an early high of Rs 54.10.