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Excise Duty increase in cars pushes prices higher: Diesel vehicle buying get a lease of life in Indian auto market for 2012

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The 2012 Union Budget is out and Finance Minister Pranab Mukherjee has given with one hand but taken with the other.  He has ensured that there is no increase in tax on diesel vehicles nor is there any reduction on diesel subsidies which is a good thing for the auto industry.  However, on the other hand our FinMin has announced an increase in excise and import duty which is bound to have an adverse effect on the prices of larger cars imported into the country.

Due to this increase in excise Duty, from 22% to 24% prices of small cars are not in any dire straits but people buying large cars will feel the pinch.  Customs Duty is also increased on auto parts and bicycles.

The fact that he has not announced any tax on diesel cars has come as a huge relief both the auto manufacturers and buyers.  Purchase of diesel cars had increased in the past few months.  Petrol prices were continuously on the rise and the Rs. 50 gap in prices of petrol and diesel is what attracted buyers to diesel variants, making waiting lists longer.

Following the good news from Pranab Mukherjee, auto companies have immediately announced their decisions for the future. While auto companies are most likely to pass on this increased excise duty to their customers, buyers have to get ready for price increases from Rs.5000 to Rs.40000 depending on cars in question.  Maruti Suzuki, General Motors, Toyota, Mahindra and Mahindra are all planning to increase prices of their vehicles will immediate effect and likely to make announcements soon as the increased excise duty will obviously have an effect on input costs specially on that of rolled steel.

Companies are expected to increase production of diesel cars and also concentrate their attention and invest more finance in the development of diesel engines which had been put on hold following speculations.

Indian auto industry suffered a slowdown during a major part of 2011.  Buyers shied away from making purchases due to high interest rates, continual increases in petrol prices and a general showdown in the economy.  However auto buying will receive a new lease to life post budget and auto companies better get ready to bridge the gap between demand and supply especially where diesel variants are concerned in the coming months.