The Automotive Mission Plan released today at the annual Society of Indian Automotive Manufacturers (SIAM) convention in New Delhi has included a dimensions definition on small cars that is said to favour market leader Maruti-Suzuki.
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The definition of small cars continues as ‘cars with length less than 3.8 metres’ with no limitations on the engine sizes.
Small cars in India enjoy an excise duty of 16% as compared to a normal excise duty of 24% on other cars. The duty cut on small cars was first announced during the Union Budget of March 2006, when the government announced that cars with less than 4.0m in length and having engine sizes less than 1.2-litres (petrol) and 1.5-litre (diesel) will enjoy an excise duty of 16%.
Most companies saw the duty structure favouring Maruti-Suzuki heavily as most of the company’s models fell inside the small car definition and an upcoming important model (Swift Diesel) would benefit due to its engine size of 1.3-litre. At the same time, most important models from competitors fell outside the small car definition. These included the Hyundai Getz (1.3-litre petrol) and the Ford Fusion (greater than 4.0 metres).
The competition responded by altering their models suitably. Hyundai put a 1.1-litre petrol engine in their Getz and planned a 1.4-litre diesel while Ford shaved off the bumpers of the Fusion to bring it within 4.0-metres.
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By GlobalDataHowever, the government changed its mind about the definition of small cars in September 2006 when it changed the definition to ‘smaller than 3.8-metres with no restrictions on engine sizes’.
What this means is that Maruti-Suzuki wins again as now both the petrol and diesel variants of the Swift will be classified as small cars while the Hyundai Getz (length 3.81 metres) and the Ford Fusion (length of 4.0 metres) will not enjoy the duty benefits.
What benefits Maruti even more is that slow selling models like the Versa minivan will now come under small car classification and enjoy excise duty benefits.
While the current tax levels are maintaining a status quo at the original small car definitions of March 2006, the government’s reiterating the new definition twice is a cause of concern for many.
Deepesh Rathore
