EXCISE DUTY CUT – HOW MUCH A BOON?

In the recent budget the finance ministry gave the automobile industry a gift by reducing excise duty by 8% (from 24 to 16), on all cars within 4000mm length and having engine capacity no more than 1200cc for petrol & 1500cc for diesel power trains. But is everything really as rosy as it looks? Well, look deeper and I think you’ll find some flaws in it. To know more read on.

Before we dwell deep I would like to make it clear that everyone knows the benefits here, that of small cars becoming more affordable for the common man, so I’ll leave it at that. Instead I’ll focus on the not so obvious side effects.

Firstly, this really plays into the hands of Maruti-Suzuki (partly owned by the state, so do I smell a rat here….. nah), as most of its models stand to get benefited. No wonder then, that Jagdish Khattar was all smiles after the budget was announced. But other manufacturers were not so enthusiastic. These were the reactions of three big wigs of Indian car industry:

“The industry has seen maximum growth in the mid-size car segment, with small-car buyers upgrading to bigger cars. With a segmented duty structure, the gap between a small car and a sedan becomes larger, making the up gradation that much more difficult for the customer.”
Rajive Saharia, GM, Sales & Marketing, Honda Siel

“A level playing field is essential to encourage global manufacturers to participate more actively in India. An excise duty reduction across the board would have been aligned with India’s globalisation actions.”
Arvind Mathew, MD, Ford India

“We can’t understand why there are two conditions-engine and length-for the differential excise duty. There are new technologies available which make higher displacement engines more fuel efficient so why have the engine cut-off?”Rajeev Chaba, MD, GM India

What the General Manager of Honda says above is true. This certainly is a time, when due to the boom in economy people are shifting up a ladder in respect to buying cars (read that as cars which occupy more real estate and have bigger engines). See the increase in sales of Swift/City/Fiesta as compared to the 800/Santro and you’ll realise it (and I’m certainly not referring to those exotic cars which don’t mean anything to you and me other than fancy bedroom posters maybe).

Also this is forcing manufacturers to rethink (or maybe redesign is the word here) their upcoming launches. To name a few (which are the most anticipated ones), Fiat’s Grande Punto (4030mm) and Ford’s Fusion (4018mm, though already launched) are agonisingly close but still out of the tax relief (ah…that hurts). The same goes for GM’s Aveo UV-A, but this time the culprit are its petrol engines (1400cc & 1600cc, and so their MD’s frustration about the engine limit). Everyone’s trying whatever is possible to make their cars to adhere to the so called ‘magic figures’ (call it the making of ‘Honey I Shrunk The Car’!!!). In the case of Fiat and Ford, modifications to the bumper might be able to do the job, but things are not so simple for the General (I guess one can’t shrink an engine that easily). Hence it seems that the Aveo UV-A will now be launched with a 1200cc, 70bhp engine instead. Not only does this delay the launch, but the Indian customer just might lose out on two good engines which people in other parts of the world get to relish.

Talking of engines, with today’s technology, cubic capacity is not as relevant as before (as has been aptly brought out by the MD, GM) . Why, a 2 litre hybrid engine is more fuel efficient and gives out lower emissions than a conventional 1.2 litre petrol unit. Look at the engines of City and Octavia, both of which return better ‘kmpl’ figures and are much more environment friendly than many of the cars having much smaller engines as compared to them (and they certainly are a pleasure to drive too).

So maybe the ministry has rushed through the decision and could have given it some more thought. One option would be to tax cars based on its emissions and fuel consumption, rather than size. Or maybe they could have increased the length restriction a little bit to at least take into account all upcoming basic hatchbacks.

In the end these are just my thoughts, and they certainly will vary from person to person. I would also like to bring out here that it is certainly a step in the right direction, and will bring cars within the reach of a much wider spectrum of people, only that maybe (just maybe) it could have been done in a slightly better way so as to benefit more people and encourage global companies to bring in new technologies into India. At the parting note I’ll request all of you who read it to please give it a thought and do write back to me about your views/ideas on it.