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This article was first published 13 years ago

Budget has been positive for the auto industry

Last updated on: March 1, 2011 10:54 IST


Auto: Retained excise duty at 10% on all automobiles except large cars

Budget highlights

Retained the excise duty on small cars, two wheelers and three wheelers at 10%.

To launch National Mission for hybrid and electric vehicles

Reduced excise duty from 10% to 5% on Hybrid kits for conversion of fossil fuel vehicles to hybrid vehicles.

A concessional rate of excise duty at 10% is being extended to factory built ambulances and other vehicles retrofitted as ambulances subsequent to their removal from the factory shall continue to be eligible for refund based concession.

The scope for taxis is being extended to include vehicles carrying 13 persons including driver.

Concessional excise duty structure for taxis is also being rationalized to provide refund of 20% of the excise duty paid on such vehicles, if they are registered as taxi subsequent to removal.

A concessional rate of excise duty at 5% is being extended to specified part of Hybrid motor vehicles, namely, battery pack, battery charger, AC/DC electric motors and motor controllers till 31.03.2013.

A concessional rate of Nil BCD CVD at 5% and full exemption from SAD is being extended to specified parts of the hybrid vehicles, namely, battery pack, battery charger, AC/DC electric motors, and motor controllers.

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Budget has been positive for the auto industry


Enhanced and unified the export duty on all types of iron ore to 20% ad valorem. Export duty on iron ore pellets fully exempted.

Direct Tax code (DTC) to be effective from 1st April 2012.

Increase in allocation towards infrastructure development by 23% to Rs 214000 crore (over 48% of total plan allocation) in FY 2011-12.

To index the wage rates under MGNREGA to consumer price index for agricultural labour.

Increased the minimum alternative tax to 18.5% in FY 12 from 18% in FY 11.

Reduce surcharge on domestic companies from 7.5% in FY 11 to 5% in FY 12.

Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary.

Increased allocation for defence to Rs 1,64,415 crore from Rs 1, 47,344 crore in 2010-11. It includes capital expenditure of Rs 69,199 crore.

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Budget has been positive for the auto industry


Budget expectations not met

Lowering the excise duty on large cars.

Withdraw the specific excise duty element of Rs 15,000 on cars (other than small cars).

Withdraw specific element of excise duty of Rs 10,000 on chassis fitted with engine of vehicles.

. . .

Budget has been positive for the auto industry


Budget impact

Currently the automobile industry is amidst high inflation, rising raw material prices which has to some extent being passed on as series of vehicle price hikes; increase in interest rates and fuel prices.

In this scenario, nil change in the existing excise duty on all vehicles, sans the large cars, is welcome change for the automobile industry as a whole as well as the end consumers.

Another highlight at budget was the plan to launch national mission for hybrid and electric vehicles. This monumental measure, on implementation, would enable in developing the much needed infrastructure to support such vehicles.

Also various other measures such as exemption of customs duty and concessional excise duty on imported batteries for electric vehicles, halving the excise duty on kits for conversion of fossil fuel vehicle into hybrid vehicles etc would encourage production of hybrid and electric vehicles.

Immediate beneficiaries are Mahindra & Mahindra, TVS Motors, Electrotherm - they have presence in hybrid and electric space.

. . .

Budget has been positive for the auto industry


On indirect basis, indexing the NREGS to consumer index would place more cash in hands of rural population thereby continuing to fuel rural demand for passenger vehicles, two wheelers and three wheelers.

The major beneficiaries would be Hero Honda and Maruti Suzuki India as they cater to semi urban and rural market in large scale.

Increased allocation in infrastructure would indirectly benefit the commercial vehicle players as it would fuel the demand for construction products such as tippers etc. Also the increased allocation for defence purpose could be utilized to order defence vehicles

Thus it could benefit Tata Motors, Mahindra & Mahindra and Ashok Leyland that manufacture defence vehicles.

The government proposes to introduce Constitution Amendment Bill soon to initiate the GST regime. This would reduce the various taxes to single tax rate thereby lowering the prices of automobiles across the board.

. . .

Budget has been positive for the auto industry


Companies to watch

Bajaj Auto, Hero Honda, TVS Motors, Maruti Suzuki, Tata Motors, Ashok Leyland, Mahindra & Mahindra, Eicher Motor, Force Motors.

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Budget has been positive for the auto industry


Outlook

The Union Budget 2011-12 has been positive for the automobile industry - directly through retention of excise duty at 10% and bringing the hybrid and electric vehicles in limelight while indirectly through continued thrust on agriculture and infrastructure, primary drivers for the automobile industry.

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