Excise Duty Cut in Interim Budget 2014 – Cars get cheaper!

By BankBazaar | February 20, 2014

Car on a pile of coins depicting current price cuts

The Union Finance Minister, P Chidambaram presented the Union Interim Budget for 2013 with some relief for the auto industry by announcing excise duty cuts. The excise duty has been reduced across all segments of the auto industry with a follow up reduction in the Central Value Added Tax (CENVAT). However the announcement has been received with mixed response from the auto industry. This being an interim budget shall be effective only up to 30 June 2014 by when the regular budget can be presented by the new government that takes over after the polls slated in the next couple of months from now. However, this gives the opportunity to those who have waiting to buy a car make use of the price cuts, get a good bargain and go ahead with processing their car loan for their dream car!

The Excise Cut on Various Segments

The interim budget has provisions for lowering of excise duty on all segments of the auto industry with an aim to reach out to a greater voting population in this Election year. The excise duty on small cars has been lowered from 12 % to 8 %, while in the big car segment it is from 27 % to 24 %. The excise duty on SUVs has been reduced from existing 30 % to 24 %. Similarly the duty for the scooters has come down from 12 % to 8 %. The duty for CENVAT has dropped to 6 % with it and 1 % without CENVAT.

Auto Industry Sceptic

Despite these significant cuts in the auto industry, which is reeling under some of the toughest times in the last decade has given a mixed response to the interim budget. The surge in sales that followed a similar excise duty cut in 2009 is not being expected time round. In 2009 there was an immediate and visible growth after the duty cuts within the next 6 months with growth of 25 % in the car’s segments, 39 % for commercial vehicles and 26 % for scooter in FY 2010.

The interim nature of the cut and the protracted slowdown being faced by the auto industry imply that cuts may not have a significant impact and the move will only encourage pre-buying led volume growth that may give a false impression of recovery without real substance in the long run. Additionally in case the growth in demand doesn’t sustain after 4 months it would be difficult for the automakers to announce price hikes that can have a spiralling effect on the actual sales.

Also, this unexpected bonus may actually cause some losses as the automakers and dealers have to cater for the unsold stock that has rolled out with the previous excise rates but will have to be delivered to the customer at reduced prices. The final burden will have to be borne by the manufacturer in order to bail out the dealers as had happened in 2008 after the global the global recession. With the top sellers holding an average inventory worth 2 months of sale this figure could turn out to be a substantial amount for the manufacturers to pay up.

The Biggest Gainers

This move is likely to help the big cars and luxury segment much more compared to its impact on small cars and scooters/ motorcycles where the bulk of the sales in India is still concentrated. This is visible by the fact that while the small cars have got cheaper by Rs 6000 to Rs. 8000, the big players such as Audi and Mercedes Benz have already announced cuts of more than Rs 3 Lakhs. Companies like Mahindra who rely more on Utility vehicles had been hit most in the last quarter with sales falling by 17 % as compared to a 4 % fall in the overall industry. This excise cut could prove to be a game changer for such auto manufacturers as they can offer huge price cuts in the SUV/ MUV segment to boost sales significantly.

How will the Favorites be Priced Now

The interim excise duty cut of Budget 2014 will have varying effects on the prices of the top sellers depending on the segment that they belong to. The popular car makers have already declared reduced price to pass on the benefits to the customers. So if you plan to buy a car in the near future, this announcement may help you save money or help you upgrade to a favourite car brand, which may suddenly seem accessible. To figure out if you  are eligible for your car loan, check out our EMI calculator, which can come in handy in understanding how to plan your car loan payment.

The Price Cut Statistics in terms of drop in prices:

Maruti Hyundai Volkswagen Mahindra Honda
-Maruti -800 by Rs 8197/– Alto by Rs 11784/–Celerio by Rs13615/–Estile by Rs. 12418/-

Ertiga by Rs. 18747/-

-SX 4 by Rs. 30984.-

– Eon by Rs. 10000/– Santa Fe by Rs.135300/- – Polo Hatchback from Rs 18,000-31,000- Vento Sedan by Rs 14,500-27,000
– Jetta Sedan by Rs 38,000-51,000
-Passenger Vehicles by Rs. 13000/- to Rs 40,000/–Top SUV Rexton by Rs. 92 000/- – Brio Hatchback by Rs. 14,650- CR-V by Rs. 44,741

(Note: All prices are available as reductions on the ex-showroom price in Delhi)

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