While there was some cheer on improvement in sentiment in the short-term, industry leaders express doubts over the same translating into sales, taking into account rising input prices, and an imminent rise in fuel prices

New Delhi : To revive the economy, the government today extended the excise duty concession on capital goods and automobiles by six months to December 31, a move hailed by the industry, but with a hint of scepticism.

The excise duty on cars, SUVs and two-wheelers as well as consumer durables and capital goods was cut in the Interim Budget in February to help tide over a demand slump. The concessions, which brought down prices of vehicles and consumer durables, were valid till June 30.

“Considering the present situation in various sectors, the government today has decided to extend the facility of this reduced excise duty to all those sections for a further period of six months, i.e., they will continue till December 31, 2014,” Finance Minister Arun Jaitley said.

He said the government expects the industry to show positive results in the coming months and hoped “the benefit of these duty concessions will be passed on to the consumers at large”.

Most carmakers and consumer durable firms had already passed on the benefit to customers by cutting prices. The Finance Ministry said the government extended the duty concession “given its commitment to revive economic growth” and to provide a fillip to the capital goods and automobile sector.

While there was some cheer with regards an improvement in sentiment in short-term, industry leaders expressed doubts over the same translating into sales, taking into account rising input prices, and an imminent rise in fuel prices.

“See, if the excise duty reduction was not there then the situation would have been worse. Obviously if fuel prices go up then it puts a barrier to the sales growth, but at least reduction in excise duty will mean that much impetus,” Maruti Suzuki India Ltd’s Chief Operating Officer Mayank Pareek a told news channel

A similar point was expressed by Bajaj Auto Ltd’s Managing Director Rajiv Bajaj, who said the extension is likely to boost the sentiment more than it will boost sales.

The automobile industry had been grappling with serious slowdown issues for the past two years now, with the only silver lining being May, which showed a minor growth, probably because of formation of a new government at the Centre.

Excise duty on small cars, scooters, motorcycles and commercial vehicles will continue at 8 per cent from 12 per cent previously and on sports utility vehicles (SUVs) it stands at the reduced rate of 24 per cent as against 30 per cent. The duty on large cars will continue at 24 per cent compared with 27 per cent earlier, while the duty on mid-sized cars will stand at 20 per cent from 24 per cent.

Excise duty on capital goods and consumer durables will continue at 10 per cent as against the pre-budget rate of 12 per cent.

The industry, however, wants the extension to be followed up by more policy decisions, and the Tata Motors Ltd’s official statement reflected that thought–“The excise reduction was a positive step for the automobile industry and we are glad to see it extended as it will help the industry while we await other significant policy decisions to revive the economy.”

On the revenue loss due to the concessions, Jaitley said, “We expect it will benefit the economy. So if it benefits the economy, short-term loss of revenue” should not be a concern.               He said the decision on extending the concession, which would have expired in the next five days, could not have waited till the Budget, scheduled to be presented on July 10.

Ernst & Young partner Bipin Sapra said the government’s move will help revive the beleaguered manufacturing sector.

Manufacturing output contracted 0.7 per cent in 2013-14 against a 1.1 per cent growth in 2012-13. Both the auto and capital goods segments had been lobbying for the extension of the duty cut.

In the Interim Budget, then Finance Minister P Chidambaram cut the duty with the aim of boosting the manufacturing sector, saying the “economic situation demands some interventions that cannot wait for the regular Budget”. -Cogencis/PTI

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