Mr P. Chidambaram, the finance minister of India, has hinted at cutting the excise duty on passenger cars, particularly on small cars in the near future. Small cars make up 75% of the total passenger car sales in India . At present, automobiles are burdened with an excise duty of 24%. The sector also attracts an additional 2% education cess and a 1% National Calamity Contingency Duty.

Any reduction in duty is seen as likely to stimulate small car sales in India. This growth in volumes is expected to attract further investment from international manufacturers seeking to use India as a global small car manufacturing hub (eg Hyundai).

A reduction in excise duty is expected to result in a healthy spurt in passenger car sales.

The minister also said he would look into the pending demands of the commercial vehicle industry for putting an age limit on commercial vehicles and taxing them on that basis. The finance minister also promised to look into the renewal of 150% depreciation allowance on R&D in the auto segment.

The reduction in duty on small cars is expected to benefit almost all the manufacturers in India. Already Maruti, Hyundai and Tata manufacture small cars in the country. Many manufacturers such as Toyota, GM and Honda have made plans to launch small cars in the near future. Toyota is planning to launch a Daihatsu derived model while GM will launch the new Daewoo Matiz as the Chevrolet Spark.

Deepesh Rathore / Tilak Swarup