Free Press Journal

Union Budget Rewind: A decade of budgets and the Auto Industry!


The past decade has seen the Indian Auto Industry ride a wave of ups and downs. With the Union Budget 2016 under way, let’s take a quick look at how the past decade affected the Indian automotive sector.

2006 – 07: The Sub 4 – Metre Curveball

A decade back, the Government of India brought the sub 4-metre restrictions into effect. What that effectively led to a slew of compact sedans flooding the market. A segment that was unknowingly kicked off by the erstwhile Indigo CS; now has the top-dogs from the industry battling it out for market share.

The 2006-07 budget can be termed as a turning point in the Indian Auto Industry. The odd rule not only forced manufacturers to think differently and create a class of vehicles specifically for India. Case in point: the yet to be launched Volkswagen Ameo. The restrictions also forced manufacturers to downsize engines and even develop entirely new engines that meet the mandate of the segment.

2007-2008 : More Education Cess

A secondary and higher education cess @ 1% of the aggregate of duties of excise was imposed on excisable goods. The 1% levy was in addition to the basic education cess of 2% imposed in the 2004 budget. Automakers had no choice, but to pass on the additional duties onto the customer. Automakers raised prices of their vehicles by a few thousands to offset the additional duties. Also, the government focused on in-house R&D. This budget saw a deduction of 150 % for the expenditures related to in-house research and development.

2008 – 2009 : Cars get cheaper!

The Government of India reduced the Excise duty on small cars from 16% to 12% in the  Union Budget. The excise duty rate was further reduced from 12% to 8% in December 2008. This reduction was a part of Government initiative towards revival of Automobile industry from the recessionary situation. The excise duty on cars other than small cars was also reduced from 24% + Rs. 20,000 to 20% + Rs. 20,000.

2009 – 2010 Large Cars get slightly cheaper.

The 2009 Union Budget didn’t bring much for the Auto Industry as a whole. A small silver lining was however, that the excise on large cars was reduced to 20 % (plus 15,000). However, excise on 2 wheelers, 3 wheelers, small cars and diesel driven commercial vehicles continued to remain at 8%.

2010 – 2011 The first push for Electric Vehicles

Electric cars, benefited since the excise duty on them was reduced to 4% from 8%.  Full exemption from custom tax on electric automobiles and on its components were also announced in the budget.  A blow came in the form of hike in excise for passenger vehicles. A 10% tariff was imposed on small cars; up from the 8% levels it benefited from since December 2008. Large car buyers who had gotten a nominal relief last time round had no reason to cheer either. The excise on large cars was revised to 22%.

Other significant changes that affected the auto sector was an excise of tariff of Re 1 on every litre of petrol. This led to the market lapping up diesel vehicles left, right and centre!

2011 – 2012 Getting EVs past infancy

Erstwhile Finance Minister proposed a National Mission for hybrid & electric vehicles. The mission would not only promote their adoption but also incentivise them. Critical parts/assemblies required to manufacture hybrid vehicles were granted exemption from the basic custom duty of 10%. A concessional rate of 5% excise duty was granted to locally manufactured hybrid vehicles.

The reduction of custom duty on raw steel too, gave the auto industry a reason to cheer. Besides these, the excise duty remained intact on vehicles.

2012 – 2013 The upswing

After a steady couple of years of no hikes in duty; auto-makers were in for a shocker in FY12-13. The excise duty structure for cars was revised heavily. Instead of having a single slab for large vehicles, the vehicles were split further into seemingly confusing slabs. The gist of changes included: Increase in excise duty from 10% to 12% on small cars, „increase in excise duty from 22% to 24% on large cars [more than 4m in length and having engines smaller than or equal to 1.2 litre (petrol) / 1.5 litre (diesel) engines], „increase in excise duty from 22% + Rs 15000 to 27% on large cars [more than 4m in length and engines bigger than 1.2 litre (petrol) / 1.5 litre (diesel)] The only respite was an excise duty reduction from 10% to 6% on specified parts of hybrid vehicles.

2013 – 2014 No Relief!

The auto-sector took one on the chin in 2013-2014. The budget saw an increase in excise duty of SUVs by 3%, meaning it grew from 27% to 30%. Only SUVs to be used as taxis were exempted from this increase in excise duty.

The customs duty on completely built units saw an increase of 25%; going up to 100% from the previously set 75%. The import duty on motorcycles above 800cc also went up from 60% to 75%. The excise duty for other vehicles remained unchanged.

2014 – 2015 Momentary Relief

The budget led by UPA government announced excise duty  reductions. Small cars saw a revision of 4% (from 12% to 8%), excise on mid-sized cars was reduced to 20% (down from 24%) and SUVs were levied with a 24% excise (instead of 30%). Two-wheelers and commercial vehicles also get a rate cut from 12% to 8%.

In June 2014, when the BJP came into power, the excise duty concession was extended by six months to December 31, 2014. Post which, the excise duties on the aforementioned vehicle segments were increased to the previous rates.

2015 – 2016 Nothing in it!

Please of auto-makers went unheard last year. The excise duty structure remained unchanged. The only positive thing to come out of the Union Budget 2015-16 was fund allocation to FAME. To promote green vehicles, the Government of India proposed 75 crore for electric vehicle manufacturing. Excise duty concessions on EV manufacturing were retained as well. Cars like the Mahindra e2o saw a steep price cut thanks to this. Recently launched mild hybrids such as the Ciaz SHVS and the Ertiga SHVS benefited from the cut as well.

Source: CarDekho