V-o-A interim budget 2014-15 proposal impact on Automobile Sector: ICRA analysis
India Interim Budget 2014-15 proposals entail reduction in excise duty from 12% to 8% on small cars, two wheelers and commercial vehicles, and
reduction in excise duty on mid & large segment cars from 24% to 20% and 27% to 24%, respectively, and on SUVs from 30% to 24%.
Passenger vehicles sales during April-January 2014 registered 6.13% decline over the same period last year. Passenger Cars, Utility Vehicles and Vans sales decline is registered at 5.22%, 4.59%, and 16.81% respectively during April-January 2014 compared to the same period last year.
Three Wheelers registered 11.07% sales decline in April-January 2014 over the same period last year. Passenger Carriers and Goods Carriers sales decline was registered by 12.64% and 3.74% respectively in April-January 2014 over April-January 2013.
Two Wheelers sales growth of 5.76% was registered during April-January 2014 over April-January 2013. Scooters and Motorcycles grew at 20.75% and 2.65% respectively, while Mopeds reported 9.52% sales decline in April-January 2014 over April-January 2013.
During April-January 2014, overall automobile exports grew by 6.29%. Passenger Vehicles, Three Wheelers and Two Wheelers registered growth at 7.11%, 15.99%, and 5.27% respectively, while Commercial Vehicles registered 10.87% sales decline during April-January 2014 compared to the same period last year.
India Interim Budget 2014-15 proposals will have a positive impact on a number of fronts. Reduction in excise duty on automobiles is a positive as it reduces vehicle price across all segments, thereby supporting demand. Reduction in excise duty could bring down cost of passenger vehicles by Rs. 15,000-46,000 and that of commercial vehicles by Rs. 19,000-42,000 per vehicle (assuming OEMs pass on the benefit completely).
For passenger car, and two-wheeler segments, price reduction should help demand in the near term through â€˜positiveâ€™ sentiment effect. For commercial vehicle segment, reduction may provide relief to the industry currently reeling under high discounts.
In the longer run, a sustainable demand recovery in the automobile industry would be contingent on improvement in the overall economic environment.