Auto sales: Why FM must correct excise 'anomaly' for SUVs

New Delhi: If the Finance Minister does nothing to correct what the auto industry is now terming as excise duty "anomaly" for SUVs soon, their growth would get severely impacted.

Utility Vehicle (UV), which was the fastest-growing vehicle category last fiscal, at 52%, is projected to grow at just 11-12% in the current fiscal thanks to excise duty hike.

In the Budget for 2013-14, the FM has hiked excise duty on SUVs by 3% to 30%. He has imposed the extra duty on all vehicles which are 4 metre or above in length, have ground clearance of 170 mm and above and engine displacement of 1500 cc and above. Not just all Utility Vehicles, some sedans such as Maruti SX4 and Toyota Corolla now fall under the highest excise bracket. Popular SUVs including Mahindra Scorpio, Mahindra Bolero, Tata Sumo and Tata Safari and Renault Duster petrol are also now charged at the higher excise duty bracket.

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In the Budget for 2013-14, the FM has hiked excise duty on SUVs by three per cent to 30%. Reuters[/caption]

SIAM President S Sandilya said that unless the government corrected the definition of which vehicles should attract higher excise, the UV category will suffer. Also, a high base effect from the last fiscal will impact growth of this category, besides steadily rising prices of diesel (almost 90 percent UVs run on diesel).

He said the Heavy Industries Minister Praful Patel has already written to then FM, requesting that the criteria for higher excise be altered and some good news may be expected when the FM replies to the Finance Bill in Parliament. "We at SIAM have asked the FM to alter the criteria so that lower end of UVs, vehicles which are largely used in rural transportation, are spared".

A story in the Hindu Business Line on Monday quoted from Patel's letter "If imposing this additional duty is entirely unavoidable on account of revenue and the subsidised price of diesel, may I request you to exempt all such vehicles classified as SUV that have an assessable value of up to Rs 10 lakh from the ambit of three per cent additional excise duty."

Meanwhile, SIAM today also released its sales forecast for all vehicle categories for this fiscal. So passenger cars, which have seen scorching growth rates of almost 30% not too far back, are projected to grow by just 3-5%; two wheelers would grow by 6-8% and overall industry sales by just 6-8%.

Sandilya said these projections could well change if the economy picks up, vehicle interest rates decline from their highs right now and on the back of more than anticipated new launches.

For the first time in 12 years, passenger cars declined by 6.69% last fiscal - the last such decline was in 2000-01 at 7.73%. Two wheeler sales growth last fiscal at 2.9% was the slowest since 2008-09 when the globe was in the grip of a severe slowdown. Even Commercial Vehicle sales were lowest since the 2008-09 period, declining 2.02% in 2012-13 against 21.67% in 2008-09.

As we said earlier, UV sales zoomed 52% last fiscal, vans grew negligibly at 1%, light CVs were up 14% but larger trucks and buses declined b a massive 23%. Scooter sales were higher by 14% but bike sales stagnated with growth of just 0.12%.