* India FY14 budget proposes tax hike on SUVs
* Sales of SUVs one of the industry's few bright spots
* Import tax on luxury cars and bikes also up
(Adds quotes, details, updates shares)
MUMBAI, Feb 28 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 federal budget that offered little help for the
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'
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, India's
biggest SUV manufacturer, fell as much as 2.5 percent on
Thursday, and shares in Tata Motors Ltd fell as much
as 2 percent.
Maruti Suzuki India Ltd, India's biggest carmaker,
saw its shares fall as much as 3.4 percent, and the industry
index shed as much as 1.3 percent after the
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
"(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
(Reporting by Henry Foy; Additional reporting by Anurag Kotoky
in NEW DELHI; Editing by Daniel Magnowski)