Union Finance Minister Pranab Mukherjee’s Budget announcement to hike central excise duty to 10 per cent has led to immediate increase in car prices by at least two car majors, while others are likely to follow suit. However, the auto industry has welcomed exemptions provided to electric vehicles manufacturers and also concessions in research and design (R&D) activities.

Two auto majors – Maruti Suzuki and Hyundai – have already announced increase in their car prices. Maruti Suzuki has revised prices of its various models, ranging between Rs.3,000 and Rs.13,000, which will be applicable from midnight of February 26, 2010, while Hyundai said the increase in the prices of its cars would be between Rs.6,500 and Rs.25,000. Tata Motors is also considering a hike of Rs.5,000-6,000 on cars and Rs.60,000-70,000 on heavy vehicles.

“Car prices will go up… this is essential to offset the increase in central excise duty,” said Maruti Suzuki Indian Ltd. Chairman R.C. Bhargava, while Tata Motors Managing Director (India Operations) P.M. Telang echoed the same sentiments. Other car majors including Ford, General Motors and Volvo have also announced passing the burden to their customers.

General Motors India President & Managing Director Karl Slym said: “We were not expecting any hike in excise duty and imposition of some duty on petroleum products. We will evaluate the impact of the hike in excise duty and revise the price of our vehicles in line with the increase,” he added. Mr. Slym however, welcomed concessions given to environment-friendly mobility solutions and also for manufacturing and R&D activities.

Similarly, Ford India President and Managing Director Michael Boneham said the hike in excise duty on cars was a “major disappointment” as there was strong need to continue the stimulus to support the ongoing fragile recovery.

Reacting to concessions to electric vehicle manufacturers, Society of Manufacturers of Electric Vehicles (SMEV) Director (Corporate Affairs) Sohinder Gill, who is also Hero Electric’s CEO, said: “With the reduction in counter veiling duty on import of critical components and an imposition of nominal excise duty in order to avail the MODVAT (modified VAT) benefit, the Finance Minister has taken the first positive step in promoting electric vehicle mobility. This will help in getting back the confidence of the serious and genuine domestic electric vehicle manufacturers, who were fighting a losing battle against the trading of cheap Chinese EVs in India.”

The Society of Indian Automobile Manufacturers (SIAM) President Pawan Goenka, who is also Mahindra & Mahindra’s President (Automotive), said two per cent hike in excise duty was expected and should not have adverse impact on the market. “The industry was hoping for a reduction in the large gap in excise duties between smaller personal vehicles and commercial vehicles and the high excise levy on larger personal vehicles, but that did not happen,” he added, but welcomed reduction correction in excise duty on electric vehicles and focus on research and design.

Similarly, Automotive Component Manufacturers Association (ACMA) President Jayant Davar said the auto component industry comprises largely of small and medium units that would continue to get support from the government by getting interest rate subvention of two per cent to SMEs for exports and also through ease of cash flow.

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