Auto Sector Witnesses a Gloomy Budget

There were tonnes of expectations laid around the Union Budget 2013 regarding the revival of the automobile sector. However, we expected the government to take some steps towards the revival of the economy as a whole. As automobile sales are directly linked to the health of the economy and the fact that the government was in a situation where it had no option but to take steps in this direction, we had not been too hopeful of any sector-specific moves.

In line with these expectations, the excise duty structure was maintained to what it was. The only change that came in was in the excise duty on SUVs wherein the tax rate was increased from 27% to 30%. This would include all vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including Utility Vehicles of length exceeding 4000 mm and having a ground clearance of 170 mm and above.

Vehicles coming under this category include popular models of Mahindra & Mahindra (M&M) and Tata Motors. In the case of M&M, these vehicles have been the drivers of growth for the company in the recent times. Although the impact of this duty-rise doesn’t seem to be of a great negative impact, the stock prices of M&M ended the day lower by 2.27%.

However, the shares of Tata Motors ended the day higher by 0.49%. This slightly upward closing was a result of the proposed spending on Jawaharlal Nehru National Urban Renewal Mission (JNNURM). Under this, the government would spend Rs 14,873 crore in FY14 as against a spending of Rs 7,383 crore in FY13. A significant portion of this will be used to support the purchase of up to 10,000 buses. This would benefit bus sellers like Ashok Leyland, Eicher Motors and Tata Motors.

Overall, the automobile manufacturers have always been supportive of high customs duty on imported items to aid domestic manufacturers and production. The Finance Minister proposed to increase the duty on high-end motor vehicles, motorcycles and yachts. Taxes were increased for luxury motor vehicles from 75% to 100%, for motorcycles with engine capacity of 800 cc or more from 60% to 75% and on yachts and similar vessels from 10% to 25%.

As expected, measures were taken to boost the manufacturing and selling of electric and hybrid vehicles. These include the extension of currently available concessions on specific parts of electric and hybrid vehicles till March 31, 2015. Excise duty on specific parts was reduced from 10% to 6%.

Overall, the automobile sector is disappointed since there were no drastic industry-specific steps taken to revive the slump in the sector. The above steps would affect certain segments, positively or negatively. However, largely, the health of the sector will only improve as macroeconomic conditions get better.