Though the Indian auto industry was hoping for excise duty reductions in the budget, the finance minister, instead, slapped a higher levy on SUVs, while increasing customs duty on imported cars and 800cc-plus motorcycles.

The Hindu reported SUV manufacturers will now have to cough up 30% excise duty, up from 27%, while imported luxury cars will now attract 100% import duty, a rise from 75%.

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A year ago, import duty on such cars was hiked to 75% from 60%. For companies like BMW, Audi and Daimler, local assembly is the best future option, the paper opined.

“It is also a clear message from the government that there is no question of cheap car imports from the EU in the event of a free trade agreement,” the Hindu said.

“The bigger blow, though, is the decision to hike excise duty on SUVs. Critics have constantly maintained that this product segment is making the most of subsidised diesel. Now, with diesel prices on the route to deregulation, that argument just does not hold any water.

“This, perhaps, explains why the finance minister chose to cite another explanation that ‘SUVs occupy greater road and parking space and ought to bear a higher tax’.

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This will be a drawback for Mahindra & Mahindra, Renault, Tata Motors and Toyota as well as new entrants like Ford [which launches the locally-made EcoSport this month].

While Joginder Singh, president and managing director, Ford India, was disappointed with the hike, Sunil Rekhi, CFO, Renault Nissan India, said he did not expect a big impact as other budgetary announcements to boost investments would help the industry.