Customers will not gain as much as it appears to be from reduction in excise duty on small cars as announced in the budget for 2006-07 as manufacturers had already raised the prices ahead of the Budget, an economic think tank CMIE has said.
In fact, most of these car companies have even withdrawn the discounts that were being offered on their cars in view of reduction in prices, the Centre for Monitoring Indian Economy said in its latest report.
"Nevertheless, in the long run, succumbing to competitive pressures, if car companies restore discounts and freebies, then it would have a greater impact on the demand for such cars in the coming years," CMIE's latest Monthly Review for March said.
This is expected to lead to a step-up in growth of the car market, the review said, adding that with India being developed as a global manufacturing hub for small cars, more companies are expected to enter this segment.
After the reduction in excise duty, Maruti cut prices of the 800, Alto, Zen, WagonR and Omni models by Rs 13,000-22,000, while Tata Motors slashed prices of the Indica by Rs 17,000-23,558 on the petrol and diesel variants.
Hyundai also reduced prices of Santro by Rs 23,000.
The review also said Maruti Udyog will be the biggest beneficiary of the cut in excise duty on small cars as they account for as much as 82 per cent of the company's total car sales.
MUL expects a double-digit growth in the car sales next year, after the subdued growth this year, CMIE said.
Hyundai Motors is also bullish on the Indian small car market, the review said, adding that the company expects that on the back of sustained economic growth and the stronger purchasing power of India's expanding middle class, the small car market would grow to 960,000 units a year by 2010 from about 60,000 units presently.
Hyundai will also benefit significantly from the excise duty cut announced, as out of every five cars that the company sells, four are compact cars, CMIE said.
Pointing out that nearly three-fourths of Tata Motors' car sales are of the Indica, 80 per cent of which, in turn, is reportedly of the diesel variant, the review said the excise cut is not likely to have a major impact on its sales.
About India becoming a hub for small cars, at which the budget announcement is targeted, CMIE said Toyota and General Motors have already announced their intention to launch small cars in the fast-growing Indian market.
Nissan Motors of Japan is also believed to be planning to develop a new small car targeted at India, China and other emerging markets, the review pointed out and said Honda Motors of Japan also announced that it is imperative to have a small car in the Indian market.
The economic think tank said Honda Motors' proposed small car for India is likely to be priced at about Rs 450,000, to be pitted against the recently launched Maruti Swift.
The car, to be produced at Honda's new facility near its existing plant at Greater Noida, would take at least 2-3 years to hit the market, the review said.
© 2026