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Duty hike offers no real gain to govt
June, 16th 2008

Symbolism if it delivers can be a boon, at least that is what the government might be wishing and hoping for in its zeal to be doing something about the burgeoning fuel bill. However to levy it illogically as many in the industry feel is yet again showing a return to knee-jerk methods of the past, given that the automotive industry is always the best whipping boy around.

The additional surcharge of Rs 15,000 on cars sporting engines from 1500cc to 1999cc and Rs 20,000 for cars above 2000cc in fact works out even more to the car buyer when computing the on-the-road pricing of the vehicle he or she intends to buy from tomorrow. The cascading effect when VAT, insurance and road tax is computed means the hike will be much more.

And when one considers the overall market for cars with engine capacities exceeding 1500cc is around 25-27% of overall car sales, it is clear that penalising this set is not about to put a smile on the faces of the petroleum ministry. It is a knee-jerk reaction at best and when actually the subsidies should have been cut elsewhere, and a more realistic pricing approach to petroleum products arrived at, the excise duty surcharge is again a burden which will scupper the chances of the automotive industry in the country which is just about getting ready to battle the challenges it faces on the technological front.

Jnaneswar Sen, V-P at Honda Siel Cars India, said the step will impact demand in the luxury car segment and would affect purchasing decisions, even though these are bought by the so-called 'affluent sections'. "As a manufacturer, we prefer uniform playing ground for all kinds of vehicles," Sen said. Some of the popular models of Honda like Civic and Accord would fall under the new excise regime.

"It is not a good thing for the auto industry. We are already under pressure due to a variety of negative factors like high interest rates and fuel costs," said Arvind Saxena, marketing head of Hyundai Motor India, adding government's intention of higher collections may not yield much dividends as demand for the targeted vehicles may fall due to the higher costs. "If the sales drop, the realisations for the government will also come down."

Consider this: Cumulative annual sales of the vehicles covered under the higher excise duty would be around 2.5 lakh units. So, the collection that government makes from new excise is around Rs 500 crore, which is just 0.1% of the Rs 500,000 lakh crore target of total tax collections.

Doing the maths and arriving at the sum recovered from the automotive segment in this manner is just a drop in the ocean. Why not take a larger and more holistic approach to tackle the fuel bill where the costs are shared down the line and in equal proportion? The time has come for that and not for moves like this.

While the industry has made major strides in its efforts to deal with the vexed subject of fuel economy in an emphatic manner but the true advantages of all the technological brilliance have been washed away by inept handling of fuel products (quality and quantum dispensed), the abject lip service to disciplining in-town traffic flow, stronger policing and licensing measures, lack of driver training and what have you. Addressing these will only help society to benefit from the engineering efficiency of the Indian automotive industry. And also of course lessen the fuel consumed with lower emissions. Sadly skewed symbolism appears to have triumphed once again and the automotive industry seems to be paying the price for it.

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