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S. Muralidhar
B. Krishnakumar

THE Budget had nothing specific to offer the automobile industry. But given the constraints under which the Finance Minister had to draw it up, the industry did not expect any direct incentives in the form of duty cuts.

However, there are still a few long-term benefits that could accrue to the industry due to the lowering of import duties and the additional allocation of budgetary resources for investment in the development of road infrastructure.

The Finance Minister has allowed accelerated depreciation benefits for automobile manufacturers investing in plant and machinery to increase installed production capacity by over 25 per cent. This provision is unlikely to benefit any of the industry's current players as additional capacity creation is unviable, what with less than 50 per cent of the existing capacity being utilised, especially in the passenger car segment.

Passenger cars: As far as passenger cars are concerned, the manufacturers could gain from a marginal lowering of peak Customs duties from 35 per cent to 30 per cent, since component prices would be reduced commensurately. Many of the multinational car manufacturers that continue to import a substantial portion of their components will benefit.

Car-makers who are big consumers of aluminium, would also benefit from the reduction in import duties on the metal, particularly since the international prices of aluminium are lower than domestic prices. However, none of this is likely to lead to manufacturers passing on the reduction in the ex-showroom prices of cars.

On the contrary, the car buyer who was planning to leverage the price differential between compressed natural gas and other fossil fuels will now get an unpleasant surprise. The Budget doubled excise duty on this only credible alternate fuel.

Commercial vehicles: The commercial vehicle segment has even less to look forward to. With a lower dependence on imports, the only positive outcome from the Budget could be the long-term benefits of the Government's planned investments in infrastructure. Commercial vehicles by nature are likely to benefit more from improved road infrastructure in urban and rural areas.

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