The extension of excise duty cut till the year end may not immediately turn around the fortunes of the automobile industry, but it will be a much-needed short term respite given the emerging challenges.

Industry representatives point out that any fuel price hike as a consequence of Iraq crisis and poor rains would dampen the improving sentiments and result in fall in demand, particularly for two wheelers and cars. Thus, the extension of lower duty comes as a breather for the automakers.

But, it is unlikely to result in any price reduction of vehicles as automakers have already undertaken price correction exercise. Rakesh Batra, Partner and National Leader - Automotive practice, Ernst & Young pointed out that there wouldn’t be any significant impact on demand front as a consequence of duty cut extension. But it would provide stability for the sector and the consumers and will provide a platform for revival in growth with an improving consumer sentiment and an anticipated uptick in economic activity.Icra’s Group Vice President – Corporate Rating, Subrata Ray felt that the overall impact would remain marginal — the industry turnaround would be contingent on demand recovery — and duty reliefs typically don't have any sustainable impact on demand as consumers are still battling with high inflation, unaffordable interest rates and pricey fuel.

Vikram Kirloskar, President, SIAM has described the move as quick and timely action taken by the new Government. “This will contribute positively to improve the buyer sentiment and would help in bringing about a sustained recovery in the automotive industry that has been languishing for over two years now. This will go a long way in bringing back growth, investments as well as encourage higher employment.

Automakers such as Maruti, Hyundai, Mahindra, General Motors, Renault India, among others welcomed the move.

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