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Published on : Jan 02, 2015

The Narendra Modi-led government in India has decided to cut back on excise duty concessions on consumer durable and mass-scale automotive products such as cars and bikes. The new year has dawned with a lining of higher costs for the common man as a result. A senior official in the finance cabinet confirmed that the government expects an income of about INR 1,000 Cr thanks to the cutbacks, with the administration struggling to meet its fiscal deficit targets.

The excise tax rates were dropped in February by the then-ruling UPA administration in order to boost a struggling automotive industry. The tax rate for bikes, small cars, and commercial vehicles was lowered to 8% from 12%. Among larger cars, mid-sized cars got a cut of 4% to end up on 20%, the tax for large cars was cut to 24%, down by 3% from the original 27%, and the tax rate for SUVs was lowered by 6% to 24%. The stopgap measures were carried on by the Modi-led BJP government, elected into office in May 2014, and extended till the end of the year. The move paid rich dividends, as the automotive industry posted a double-digit growth rate for the first time in two years, ending up at 10.01% in the April-November period in 2014.

Automotive companies in India are bracing for a consequent price hike, which is expected to affect sales in the short term. Officers from both Honda and Suzuki reiterated the expectation that the government’s move will result in a price hike of up to 4% and will affect demand, but they had little choice but to accept the change and move along with it.