BUDGET 2013-14: Auto Sector Largely Unimpacted - India Ratings

Mumbai, February 28, 2013: The Union Budget 2013-14 is likely to have a minimal impact on the domestic auto sector, considering that excise duties have remained largely unchanged, and macro-economic parameters continue to weigh down sales.

With excise duty for most categories remaining unchanged at 12%, and given the high interest rates and increasing diesel prices, passenger car and van sales growth will be in line with India Ratings’ 2013 expectation of 2%-3% and 0.5%-1.5%.  Despite an increase in excise duty on utility vehicles (UV) to 30% from 27% (with duty on UV taxis, contributing to significant proportion of sales, remaining unchanged), the overall sales in this category are not likely to be materially impacted. Increase in prices in the mid-to-top-end UV segments would not be a deterrent for high net worth individuals as well as corporates. Competitively priced low-end UV models would continue to contribute to the bulk of segment sales, as their prices are comparable to mid-size cars. 

The increase in customs duty on imported luxury cars to 100% from 75% would channelise the demand towards locally assembled luxury models and be positive for the domestic industry.

The proposal to allocate INR148,730m towards Jawaharlal Nehru National Urban Renewal Mission (JNNURM) (a part which is meant to acquire 10,000 buses in largely hilly areas) would help prop up sales volumes of Medium and Heavy Commercial Vehicles (MHCV) passenger carriers to some extent. MHCV manufacturers and bus body builders would benefit from government purchase of fully built buses. 

(Source: Manager – Corporate Communications and Investors Relations, India Ratings & Research  A Fitch Group Company)