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Post Budget Scenario


Automobiles Industry

Budget offers
Special excise duty has been withdrawn by 8%, which has resulted in reduction in excise duties for scooters, motorcycles and passenger cars. There is a reduction of excise duties on passenger cars, from 40% to 32%. For motorcycles and scooters the reduction in excise duty will be from 24% to 16%

QR restrictions being lifted from April 2001, the import of second hand vehicles to be permitted however at high rates of duties. Second hand passenger cars to be permitted at an import duty at 105% ( 3 times the peak rate of 35%), for which the effective duty works out to over 180%.

In order to give an impulse to the commercial vehicle industry, the budget has recommended a 50% accelerated depreciation rate for new commercial vehicles for a period of one year.

Reduction of dividend tax from 20% to 10%.

The proposals given for reforms in the agricultural sector will benefit the auto sector.

Impact
The budget measure will have a positive impact on the automobile sector as a whole as second hand imports have been a major worry for the sector. As the budget has recommended high import duties for second hand cars, this will result in protection to the domestic passenger car industry when QRs are lifted in April 2001.

The reduction in excise duty from 24% to 16% for scooter and motorcycles will benefit industry majors like Bajaj Auto, Hero Honda and TVS Suzuki. If they pass on the entire reduction to their consumers higher volumes in this segment will benefit the sector.

The reduction in special excise duty of 8% will benefit the passenger car industry as the excise duty now stands at 32%. This will benefit Telco, as it will be able to pass on this reduction to consumers. This will result in lower prices and hence give an impetus to falling volumes in this segment. The other gainer will be Daewoo Motors.

Speedier reforms in the agricultural sector will benefit companies like Hero Honda, Punjab Tractors and M & M. Their dependence on the rural economy for sale of motorcycles, tractors and utility vehicles will benefit these companies as currently the agricultural sector is not doing well.