Excise cut uncertainty drives up car production levels

Car makers in India have reportedly accelerated their production levels in the run up to the end of 2014. The reason cited for this, is uncertainty regarding the excise duty cut continuation. The previous UPA government announced an excise duty cut during the interim budget. The announcement was followed by most car makers dropping prices across their range. The current BJP led government extended the cut to the end of December 2014, but car makers are now uncertain if the duty reduction will remain.

After a slowdown that lasted for over two years, the automotive sector saw an upturn in 2014. Several industry experts believe the excise duty drop & subsequent price cuts contributed to the positive buyer sentiment. December usually sees a demand slowdown, but with buyers and manufacturers unsure if the duty cut will remain, the latter expects demand to surge. Excise duty is levied at the production end which is why manufacturers are reportedly stocking up dealers in order to provide cars at the current rate, even if the tax cut isn't extended.

In September this year, Minister for Heavy Industries Anant Geete stated that the cut "shall be extended at least till March 2015." However, manufacturers are still waiting for an official confirmation of the same.

ET Auto reports that sales in June 2014 went up as buyers expected the duty cut to lapse. Manufacturers are supposedly expecting a similar response this month as the government's stand remains unknown.

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