2012 Union Budget and auto companies in India: Excise and import duty on cars

The country was eagerly awaiting Pranab Mukherjee’s Union Budget 2012 speech with bated breath.  Some were predicting hike in tax on diesel while others were eager to know if there would be any reduction in the subsidy of diesel. Pranab Mukherjee’s Union Budget saw auto makers watch to see if prices of diesel cars was about to increase.  The past few weeks had seen a boost in sales of diesel variants across the auto sector.  Buyers and auto makers alike were predicting rise in prices of diesel vehicles following such increase in taxes and reduction in subsidies.  However, they were relaxed to note that the tax on diesel or a reduction in fuel subsidy which was predicted is not about to take place.

Shares of all top auto companies surged sharply following Pranab Mukherjee’s revelations. Tata Motors shares increased by 2.6% while that of Maruti Suzuki increased by 4.6% to Rs.1,378, immediately after the Finance Minister’s union budget speech.  Shares of Mahindra and Mahindra too increased by 6.1% as they are the leaders in SUV manufacture and their entire range consists of diesel vehicles.

Car makers across the country had fears that this year’s Union Budget will spell doom and once again adversely affect sales.  The last year was bad enough where sales were concerned due to higher interest rates, high prices of fuel and strikes in Maruti Suzuki, Manesar plant which affected the market leader in the auto sector.

Pranab Mukherjee has however announced an increase in import duty by 15% from 60% to 75% where assembled SUVs and MUVs are concerned.  Cars made in India will also carry an excise duty of 27% but this would not have a major impact on the cost of cars. Pre budget rush to purchase diesel variants had seen a drastic increase and resulted in long waiting lists.  The diesel model of Maruti Suzuki Swift now has a waiting period of 6 months.  Buyers who did not make it to pre budget buying can now heave a sigh of relief to note that they have not missed out on the early bird catching the worm nor have the lost any money in taxes.