Carmakers reel from SUV tax hike in budget

MUMBAI Thu Feb 28, 2013 4:43pm IST

Mahindra & Mahindra's new SUV vehicle XUV 500 is pictured during its launch in Pune September 28, 2011. REUTERS/Vivek Prakash/Files

Mahindra & Mahindra's new SUV vehicle XUV 500 is pictured during its launch in Pune September 28, 2011.

Credit: Reuters/Vivek Prakash/Files

Related Topics

Stocks

   
Polluted waters of China

Polluted waters of China

Growing cities, overuse of fertilizers, and factory wastewater have degraded China's water supplies to the extent that half the nation's rivers and lakes are severely polluted.  Slideshow 

MUMBAI (Reuters) - A surprise hike in tax on SUVs in India risked hurting one of the only bright spots in the country's automotive market, sending industry shares falling on Thursday after a budget that offered little help for the struggling industry.

Car sales growth in India is set to be its poorest in almost a decade during the financial year that ends in March, but strong demand for sports utility vehicles (SUVs) has provided some cheer for the country's automakers.

The budget for the coming financial year proposed a hike in the duty paid by the manufacturers of the vehicles to 30 percent from 27 percent, and did not include a reduction in excise on small cars, as the industry had hoped.

"Given the growth in that sector, that's going to hit very hard," Lowell Paddock, managing director of General Motors' (GM.N) Indian operations. "It's going to affect a lot of different manufacturers here ... I was surprised by that."

"What I guess I find frustrating is that there was not a recognition that the industry is currently in the doldrums," Paddock told Reuters, adding that the specific details of the SUV duty hike would be important in determining its impact.

Shares in Mahindra and Mahindra Ltd (MAHM.NS), India's biggest SUV manufacturer, ended down 2.14 percent on Thursday, and shares in Tata Motors Ltd ended up 0.5 percent after falling as much as 2.4 percent.

Maruti Suzuki India Ltd (MRTI.NS), India's biggest carmaker, lost 3.9 percent, and the BSE auto index shed as much as 1.3 percent after the announcement.

High interest rates and rising fuel costs combined with sluggish economic growth in Asia's third-largest economy have slammed the brakes on India's car industry, once one of the world's most promising growth markets.

Sales of utility vehicles in India rose 57 percent in the nine months to December, against a 2 percent fall in car sales.

"SUVs occupy greater road and parking space and ought to bear a higher tax," finance minister P. Chidambaram told parliament in a budget speech that increased spending and raised taxes on the rich.

Chidambaram also proposed an increase in import tax on luxury vehicles to 100 percent from 75 percent, and on motorcycles with engine capacity above 800cc to 75 percent from 60 percent.

"(It) is totally surprising," said S. Sandilya, president of the Society of Indian Automobile Manufacturers, a lobby group.

"We need to find out how it affects overall sales. It was one area where growth was significant and yes, this will have an impact."

(Reporting by Henry Foy; Additional reporting by Anurag Kotoky in NEW DELHI; Editing by Daniel Magnowski)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Top News

REUTERS SHOWCASE

Kerry's India Visit

Kerry's India Visit

Kerry presses India on WTO deal ahead of arrival  Full Article 

Big Infra Deal

Big Infra Deal

Piramal, Dutch APG tie up for $1 bln infra investment  Full Article 

E-Commerce

E-Commerce

Amazon says to invest $2 billion more in India   Full Article 

Lupin Results

Lupin Results

Q1 net profit up 56 percent on higher U.S. drug sales   Full Article 

Twitter Results

Twitter Results

Twitter assuages growth concerns for now as shares soar 35 percent  Full Article 

Auto Sector

Auto Sector

VW closes in on Toyota as global auto leader  Full Article 

Fed Meeting

Fed Meeting

Fed seen trimming bond buys, could offer vague rate clues  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage