Ever since the Indian Government reduced excise duty on small cars in the Union Budget 2006, most auto majors have been crying foul. Excise duty on small cars was reduced from 24% to 16% as a part of the broader auto policy and in a bid to make India the small car manufacturing hub of the world. Small cars have been defined by the Government as petrol cars with an engine capacity not exceeding 1,200 cc and not exceeding 4,000 mm in length, and diesel cars of engine capacity not exceeding 1,500 cc and not exceeding 4,000 mm in length.

Maruti seems to be the happiest with the excise cut on small cars since it’s the leader in the segment and is planning to launch the New Zen -Estilo (1100 cc petrol) and the diesel Swift (1300cc diesel) both of which will benefit from the lower excise duty. The excise duty cut has already resulted in global auto firms — like Suzuki, Nissan and Hyundai — lining up over $6-billion investment plans to build small car bases in India. And some in the government feel removing this sop now might go against the FDI flow.

However most auto majors including Hyundai, Honda, Toyota and General Motors are piling on the pressure on the Government to cut cuty to 16% for all cars in the upcoming Union Budget 2007. This seems obvious since their product portfolio relies majorly on larger cars which are still taxed at 24%. Also it seem right to have a uniform duty structure for all cars and not to disriminate on the lines the Government has drawn.

Consider this: An old generation Indica V2 Diesel is eligible for lower 16% duty while a new generation Swift (petrol) isnt just because it has a 1300cc engine! So does that mean that the Government doesnt see the Swift as a small car? The Government clearly doesnt understand the automobile industry.