* Feared diesel tax not in budget, fuel subsidy to stay
* Rise in excise duty sparks price hikes
* Tax increase on imported cars to help local players
* Maruti, Mahindra stocks jump
(Adds quotes, Ford and Tata Motors price rises)
By Henry Foy
MUMBAI, March 16 Indian automakers heaved
a sigh of relief after the federal budget did not hike taxes on
diesel cars and retained a generous subsidy on the fuel, but
companies criticized a rise in excise duty that will trigger an
increase in car prices.
Any measures in the budget to specifically make diesel cars
more expensive to buy or run might have poured cold water on a
segment that has boosted sales even as overall demand slows on
high interest rates and rising petrol prices.
"This budget was very, very good for the auto industry,"
said Vineet Hetamasaria, auto analyst at PINC Research in
Mumbai. "Everyone was expecting taxes, and they didn't come."
Shares in market leader Maruti Suzuki hit their
highest level since January 2011 and all-diesel manufacturer
Mahindra and Mahindra saw its stock rise as much as
Tata Motors shares jumped as much as 2.6 percent
to their highest-ever price after Finance Minister Pranab
Mukherjee's budget speech in parliament, but closed down 1.3
percent as investors worried about an increase in excise duty.
The company said in a statement after the market closed that
it would increase the prices of all its passenger and commercial
vehicles with immediate effect, in proportion to the increase in
excise tax outlined in the budget.
Mukherjee said on Friday that excise duty on cars currently
taxed at 22 percent would increase to 24 percent, and excise
duty on cars currently taxed at 22 percent with an additional
15,000 rupees per vehicle charge would increase to 27 percent.
EXCISE HIKE "DISAPPOINTING"
The head of Ford's India unit said his company will
increase the prices of its cars as a result of the excise duty
hike, and criticized the budget's approach to the industry.
"The announcement of a 2 percent increase in excise duty is
disappointing and not favorable towards the auto industry,"
Michael Boneham, president of Ford India said in a statement.
"This will lead to increase in prices of our products and
will have negative impact on consumer confidence," he added,
without providing details.
Executives at Maruti and General Motors' India unit
also said that the excise hikes would result in an increase in
prices, without providing specific details.
Analysts said they expect car prices to rise by only about
Mukherjee also announced a hike in import duty to 75 percent
from 60 percent for assembled SUVs and multi-utility cars
costing more than $40,000, in a move seen boosting Mahindra &
Mahindra, which controls the lion's share of India's SUV market.
Shares in Mahindra ended the day up 3.1 percent at 677.95
rupees. Maruti stock closed up 0.6 percent at 1,374.35 rupees.
Diesel car sales have accelerated to account for about 40
percent of new purchases in India, compared with less than 20
percent a few years ago. The diesel model of Maruti Suzuki's
popular new Swift hatchback has a waiting list longer than six
A rush to buy vehicles before the budget drove car sales in
February to their highest-ever total.
Cutting the diesel subsidy, which makes the fuel about 50
percent cheaper than petrol, is a political hot potato due to
diesel's extensive use in India's vast agricultural industry.
Fuel retailers and environmental groups had
instead called for an extra excise duty of 81,000 rupees on
diesel cars, asserting that they account for 15 percent of the
fuel's consumption. Industry groups say the amount is less than
Clarity in the government's stance on the fuel should
kickstart investment plans by India's car makers, who were
unwilling to splurge on new plants to meet the surging demand
until the ambiguity over diesel was resolved.
Overall car sales in India will likely only post marginal
growth in the fiscal year that ends this month, but are expected
to grow by more than 10 percent in the coming fiscal year,
driven by increased salaries and a rapidly growing middle class.
(Editing by Aradhana Aravindan)