The effect of the union budget on India’s automobile industry is regarded as positive.

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While the budget has not touched the core issue of the reduction in excise duties on passenger cars, there have been duty reductions and welcome changes in the other areas that will affect the industry.


The government has reduced peak custom duty from 20% to 15%, which will reduce the cost of imported raw materials. This will lower the cost of cars with high import content, mostly affecting premium models.


A reduction in import duty on aluminium and copper from 15% to 10% has also been announced. This will have a minor positive impact on the automotive industry.


Customs duty on lead has been lowered from 15% to 5%, which will reduce the input costs of automotive battery manufacturers. As a result, Exide has already announced a reduction of battery prices.

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Excise duty on tyres has also been reduced from 24% to 16%, a move widely welcomed by tyre makers. This is also expected to have a positive impact on automobile manufacturers.


The government has also announced a cut in the import duty on used cars and utility vehicles from 105% to 100%, a move that is not expected to affect the automotive industry.


The custom duty on specified parts of battery-operated road vehicles is being reduced from 20% to 10%. This is expected to help Reva Electric Car Company. The extension of 150% deduction on in-house R&D expenditure till March 2007 will benefit companies involved in research.


Additionally, the government has implemented some direct tax reforms that may have a positive effect on consumers’ purchasing power.


Deepesh Rathore / Tilak Swarup