Car prices may not be hiked after 2014 Union Budget

The Modi government will present its 2014 Union Budget in early July, which will replace the interim budget that the previous government presented a few months ago. The interim budget brought some cheer to the Indian auto industry in the form of lowered excise duty. The new budget is likely to continue with the lower excise duty as the Modi government is said to be keen on doling out sops to the manufacturing sector, of which the car industry is a major part.

 The manufacturing industry is going through a tough phase in India, with the industry contracting by about 0.3 % in 2013-14. With weak monsoons predicted this year, the manufacturing sector could come under increased pressure in the coming months as post monsoon demand may not be as high as that in previous years. Car, commercial vehicle and two wheeler makers could be particularly hard hit by the weak post-monsoon demand.

Manufacturing is a labour intensive industry and employs a large workforce. The rumoured tax sops for the manufacturing industry in the 2014 Union Budget will be aimed at creating more jobs, which in turn will benefit the Indian economy. The auto industry’s lobbying body, Society of Indian Automobile Manufacturers (SIAM), has already sent representations to the finance Ministry, to urge for the continuation of the excise duty cut.

Another move widely expected from the Modi government through the 2014 Union Budget is the abolition of indirect taxation on discounted sales. The Supreme Court of India, in a 2013 judgment, had ruled that a manufacturer needed to pay excise duties based on the product’s production costs even though the manufacturer sold the product at discounts. This judgment increased the tax liability of the manufacturer and the auto industry, which regularly indulges in heavy discounting to spur sales was directly affected by the Fiat judgment.

What does this mean for you, the car buyer?

• Firstly, the scare mongering tactics of dealerships and car makers alike, of prices being jacked up post the 2014 Union Budget due to the excise duties being hiked, might be just that, “scare mongering”.
• Expect car prices to actually remain steady or even fall after the 2014 Union Budget. So, you needn’t be hustled into buying a car before the “impending price hike”, which isn’t likely after all.
• Also, aggressive discounting on slow selling products is expected to continue as the indirect taxation is expected to be abolished.
• Therefore, it would be a good idea to wait for the 2014 Union Budget to make a car purchase rather than rushing in to buy a car due to price increase fears.

Via TheEconomicTimes