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Home > Business > Special

Auto sector zooms ahead in 2006

Pankaj Doval and Rajkumar Leishemba in New Delhi | December 20, 2006

The Indian automobile industry had an action-packed year with big-ticket announcements such as excise duty cut for small cars, entry of German car major Volkswagen and Mahindra's tie-up with Renault, besides snazzy car and bike launches keeping the sector in top gear in 2006.

The year also saw the release of Automotive Mission Plan 2006-2016, which aims at drawing a roadmap for the auto industry and doubling the sector's contribution in GDP by taking the turnover to $145 billion in 2016 with focus on export of small cars, MUVs, two-wheelers and auto parts.

But 2006 also had its share of differences, which literally began from the word go. The much-awaited 8 per cent excise duty cut on small cars, though cheered companies for a while, ended creating fissures within the industry as most carmakers, except for leader Maruti, terming it as a "market distorting measure".

Differential excise duty and a more favourable regime for small cars were seen to be directly benefiting Maruti, which has the largest stable of high-demand compact cars. Other companies such as Hyundai, General Motors, Honda and Toyota cried foul, demanding that excise duty be made uniform.

Another issue that rocked the bullish atmosphere was the controversy regarding land acquisition by Tata Motors in West Bengal for their ambitious Rs 1 lakh car project.

Singur, a hitherto unknown destination, became famous -- or rather infamous -- as political parties traded allegations over compensation and illegal evictions in the allotment of land to the Tatas by the Left-front government, much to the chagrin of the corporate giant.

And as if this was not enough, labour disputes also made the atmosphere uncomfortable for companies. Those in the grip of labour unrest included bike market leader Hero Honda, luxury carmaker Toyota and the already-shaken Honda Motorcycle and Scooter India, though none were bad enough to last long.

Controversies apart, big-ticket announcements and expansion plans were the flavour of the season. Maruti-Suzuki announced a massive Rs 9,000 crore (Rs 90 billion) investment for a new car plant, diesel engine plant and new product launches.

The company also announced it was a developing a new compact car which would be used primarily as an export model, though it would also be sold in the domestic market.

But the stealer of the year, literally, was the expansion of the agreement between Mahindra and Mahindra and French car major Renault.

In a sudden development, M&M and Renault announced plans to set up a greenfield car manufacturing plant in India, a venture in which Japanese auto major Nissan Motor Co may also join after it ended talks with compatriot Suzuki.

Extending their existing partnership to build variants of the French firm's low-cost sedan 'Logan', Mahindra-Renault said the venture would be export-oriented. This had a direct impact on Maruti, which was to make cars for Nissan from 2008.

The year also saw German car major Volkswagen finally making an entry into India, after many hiccups. The company, which scouted 17 locations in six states for a suitable site, zeroed on Maharashtra for a Rs 2,400 crore (Rs 24 billion) manufacturing plant that would make compact car 'Polo' from 2009.

However, aware of its delayed entry into the burgeoning Indian market, Volkswagen said it would start selling mid-size 'Passat' model from 2007, manufacturing the car at group company Skoda's Aurangabad plant.

Moving over to the two-wheeler side, bike market leaders Hero Honda and Bajaj Auto continued their slugfest, while announcing plans to move beyond their core sector.

Bajaj Auto, which managed to give jitters to Hero Honda as it scaled numbers in the bike market, announced Rs 1,500 crore (Rs 15 billion) investments, including for a foray into light cargo four-wheeler (encouraged by the success of Tatas with Ace) and a new bike plant at Pantnagar in Uttaranchal, a state that offers tax and excise benefits to investing companies.

Not to be left behind in expansion as well as diversification, Hero Honda also ventured into Uttaranchal with overall investments of Rs 1,200 crore (Rs 12 billion) for a new bike plant. Importantly, the company said it was looking at diversifying into the car and retail sectors and also expanding into auto component business.

On the policy side, the Draft Automotive Mission Plant 2006-16 - prepared by the government and Society of Indian Automobile Manufacturers - was released.

Among other things, the industry sought tax holidays for investments exceeding Rs 500 crore (Rs 5 billion), in line with the ones enjoyed by large infrastructure projects.

Other demands in the AMP included tax deductions of 100 per cent of export profits, one-stop clearances for FDI proposals in the automotive sector, deduction of 30 per cent of net income for 10 years for new industrial undertakings.

Announcements of new plants continued to pour in as companies remained bullish on the outlook. Those going for new plants included German-US luxury carmaker DaimlerChrysler in Maharashtra, General Motors in Maharashtra and Ashok Leyland in Uttaranchal. 

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