Consumer durables industry feels it will not have any major impact on product prices

The beleaguered automobile industry, which was keenly looking for any succour or fillip to boost flagging sales over several quarters, has welcomed the 4 per cent cut in excise duty for the automobile sector (6 per cent cut for sports utility vehicles) announced in the Vote-on-Account Interim Budget 2014-15.

While the auto industry was quick to pass on the benefits of excise duty cuts in cars and two-wheelers to the consumers, manufacturers of consumer durables, however, said they did not see any major drop in prices of their products.

“We believe that this reduction in excise duty will reduce the acquisition price, thereby making vehicles more affordable. This will improve the consumer sentiment, and, hopefully, revive the demand for vehicles,” said Society of Indian Automobile Manufacturers (SIAM) President Vikram Kirloskar.

Positive

“We are delighted at the steps taken to boost manufacturing sector, especially the auto industry,’’ Pawan Goenka, Executive Director & President (Automotive & Farm Sector), Mahindra & Mahindra, said in a statement.

“From where the industry is today, the Budget announcements are quite positive and should give relief to the auto industry by boosting demand. If these initiatives are maintained in the final FY15 Budget, it should be a much-needed positive stimulus for the overall manufacturing sector in India,” Mr. Goenka added.

Duty cuts across different categories of passenger and commercial vehicles are very positive steps as these will make the vehicles affordable to the consumers as well as the transporters, according to a Tata Motors spokesperson. “We expect this to have a positive impact on the consumer sentiment and hope this will bring buyers back into the market.” “However”, the statement said, “it is also important to be cautious about the extent of impact, especially in the commercial vehicles industry. The real change will only come in when we see an overall change in the macro-economic trends, an improvement in the investment environment resulting in a better utilisation of the substantial idle vehicle capacity that is currently prevailing and a more relaxed interest rate regime”.

Tata Motors said it planned to pass on the benefits of the excise duty reductions to consumers for its new despatches starting Tuesday, and it was working out the details of the exact reductions.

Joe King, Head, Audi India, said the company would pass on the benefits of the duty cut to customers.

“The auto industry has been contributing significantly to the GDP (gross domestic product) and generating employment directly and indirectly, and we firmly believe that an upswing in automotive demand will boost overall economic growth”.

Sumit Sawhney, Country CEO and Managing Director for Renault in India, said, “the Indian auto industry has been going through a rough patch lately.

In that light, government’s move to reduce excise duty will provide the much-awaited impetus to the sector. We look forward to the step being part of the government’s long-term strategy for sustainable growth for the industry.’’

K. Srinivas, President, Motorcycles, Bajaj Auto, welcomed the cut in duty, and was hopeful that “it will give a growth stimulus”.

Analysts and industry watchers have also welcomed the announcement. “We expect the excise duty reduction to stimulate demand,” said Surjit Arora, an automobile analyst with broking firm Prabhudas Lilladher. “This is on the assumption that there will be no roll-back in the excise duty in the final budget which is likely to be presented in June-July 2014 post-the Lok Sabha elections,” he added.

Growth opportunities

The consumer durables industry feels that though a two per cent reduction in excise duty would generate positive consumer sentiment, it would not have any major impact on product prices. Moreover, as these cuts would last only till June this year, real picture would emerge when the new Finance Minister presents his budget. Companies such as LG and Panasonic said they would observe the market situation and review prices accordingly.

Terming the duty cut as “good news”, Panasonic India Managing Director Manish Sharma said: “It will help stabilise and provide growth opportunities to the industry which has been witnessing a slump for some time now.” LG India Managing Director Soon Kwon said: “It is a positive step to improve the market conditions and will boost the manufacturing sector. This will generate a positive consumer sentiment, and encourage new buyers in the consumer durables sector. We are closely observing the market dynamics and reviewing various aspects regarding pricing.”

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