The government is likely to pay heed to the demands of the automobile industry and reduce the excise tax on cars to 16%. This move will bring all automobiles under a uniform excise duty rate, something which the industry had been campaigning for. In the prevous budget the excise tax had been reduced from 24% to 16% only for small cars which measure less than 4 metres in length and with an under-1,200 cc (petrol) engine capacity or 1,500 cc (diesel). The excise cut is going to be a part of the government’s long-term strategy to make India one of the largest carmakers in the world (India is currently 11th largest) and attract more foreign investment in the sector. Consumers can expect cars to get cheaper although how much of the savings are passed on to the buyer will depend on the manufacturer.

This excise cut will be a crucial factor for global auto majors like Suzuki, GM, Volkswagen etc who are in the process of setting up or upgrading manufacturing facilities in India to cater to future local demand and the export market. Last year’s Budget had also reduced the duty on raw material, which is now between 5 per cent and 7.5 per cent compared with 10 per cent earlier. The Indian automotive industry is currently worth about $32 billion and is projected to grow to over $145 billion by 2016. It is expected to double its contribution to the GDP from the current 5 per cent to 10 per cent. The industry has so far attracted investments worth over $12 billion, with about $8 billion in the pipeline, according to government estimates.

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