Mr. P. Chidambaram, the Finance Minister of India, presented the Union Budget for the financial year 2008-2009, in the parliament on 29th February, 2008. In what has been described as a budget that is expected to boost consumption, the Finance Minister mentioned significant decisions pertaining to the automobile industry, among other important industries, in India.
The Indian automobile industry had mixed reaction towards the Finance Minister's policy for the financial year 2008-2009. The minister proposed reduction of excise duties on small cars from 16% to 12%. However this reduction is not expected to bring down the price of Tata Nano. It is rather expected to add to the profitability of the project.
The Indian three and two-wheeler sector were also offered similar reduction in excise duties. The excise duties on buses and chassis were also curtailed. Moreover, the excise duty on the hybrid vehicles was also curtailed from 24% to 14% in the Indian Union Budget 2008-2009. But no such reduction on excise duties in the big car segment or exports was announced, which was much on the wish list of the Indian car manufacturers. The industry fears that this would widen the gap between the Indian small car and big car segments. The automobile industry was quick to react to the cut on excise duty as offered in the Indian Union Budget 2008-2009 and said that the benefit of such reduction would be passed on to the customers. One of the main areas - the auto components, did not receive much attention, as was expected in the pre-budget analysis. The Indian automobile industry feels that this would become detrimental in the future course of time, since this may hamper the exports of hybrid cars from India.
The Indian automobile manufacturers further feel that the farm loan waiver may add to their concern of auto loans, which is a major problem in this sector. The Indian two-wheeler market is registering a downturn and the farm loan waiver to the tune of ` 60,000 crores may choke the liquidity of the market and the banks may be more than unwilling in forwarding auto loans. The automobile industry of India is convinced that the short term effect of reduction in excise duties will benefit the industry and the customer but its long term implications are still quite unclear.