Extension of Excise Cut to Pay More Dividends in Industrial Output: India Inc

Welcoming the government's move to extend reduced excise rates till December 31 for automobile and consumer durables sectors, India Inc on Wednesday said the decision will pay dividends in terms of higher growth in industrial production, even as it hoped for further extension.

"CII in its pre-budget Memorandum for 2014-15 has asked for extension of the stimulus package up to March 31, 2015," said Chandrajit Banerjee, Director General of the Confederation of Indian Industry.

"We hope that further extension will be considered by the government keeping in view the negative growth in Automobiles as well as Capital Goods Sectors during the financial year 2013-14," he said.

In a relief to the automobile and consumer durable sectors, the government on Wednesday extended the excise duty concession by six months to December 31. (Read full story)

Terming the decision as "bold and courageous" as seen in the context of a severe fiscal constraint that Finance Minister Arun Jaitley is grappling with, Assocham president Rana Kapoor expressed confidence that it will pay dividends in terms of higher growth in industrial production.

The government had cut excise duty on cars, SUVs and two-wheelers as well as consumer durables in the interim budget in February to help the industry tide over a demand slump.

"This is indeed encouraging for the manufacturing sector which had witnessed a deceleration last year. This has sent a strong signal also to the industry that Government is according high priority to the manufacturing sector so as to create jobs in the country," said M M Singh, chairman of Ficci Manufacturing Committee and chief mentor at Maruti Suzuki India Ltd.

A Tata Motors spokesperson termed the excise reduction as a positive step for the automobile industry.

"We are glad to see it extended as it will help the industry while we await other significant policy decisions to revive the economy," she added.

Hyundai Motor India Ltd (HMIL) also hailed the government decision.

"This will create positive environment for the industry. Continuation of the current duty will help in enhancing customer desire to own cars in future," HMIL senior vice president-sales and marketing Rakesh Srivastava said.

Consumer Electronics and Appliances Manufacturers Association Consumer said the extension of reduced excise duty rates would improve consumer sentiments and strengthen growth.

"The (excise duty concession) extension is good news for the industry as it partially mitigates the cost pressures that the industry has faced," said Shantanu Das Gupta, vice president-corporate affairs and strategy Asia South at Whirlpool of India Ltd.

Samsung said the excise benefits would benefit the local manufacturing.

"This will continue to benefit growth as well as local manufacturing in the sector during the forthcoming months including festival sales," a Samsung Spokesperson said.

While welcoming the extension of the reduced excise duty rate, Pawan Munjal, managing director and chief executive of Hero MotoCorp, said the need of the hour is a long-term, consistent and uniform excise policy for the benefit of customers and sustainable revival of the industry.

"It would have been better, therefore, if it was extended till March 2016. The auto sector still continues to be sluggish and a sub-normal monsoon is likely to further dampen demand both in rural as well as urban areas," he said.

Mr Munjal further said the anomaly between the excise duty on the final product and on its inputs which happened at the time of the interim budget announcement on February this year also needs to be done away with.

"This anomaly has adversely impacted the working capital of auto companies as cenvat credit get accumulated due to higher rate of duty on inputs vis-a-vis the final product," he added.

The decision reflected the government's recognition of the importance of the manufacturing sector and its contribution to overall economic growth, Ford India president Nigel Harris said.

"This extension will most certainly help in further uplifting consumer sentiment and boosting demand. With the upcoming budget, we will continue to work with SIAM to jointly identify opportunities that may aid the future growth of the automotive sector for government's consideration," he added.

Nissan India chief financial officer Sunil Rekhi said the company will continue to pass the benefit of the reduced excise duty rates to its dealers and customers.

"However, the recent increase in freight cost, rising fuel prices, high interest rates and the weak monsoon forecast play a dampening effect in the overall economic growth and tough market conditions that is being faced by us," he added.

Auto component manufacturers' body ACMA president Harish Lakshman hoped that considering the fact that the industry is yet to tide over the current challenging times, the announcement would encourage automotive sales and thus benefit the component sector as well.