How Tax Hikes and Metal Prices Will Cut Into India's Auto Sales

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So where will India’s automotive market go from here? (Read Part One here.)

The Indian automotive industry fears that the federal government may impose higher taxes on diesel vehicles in the upcoming budget, due out later this month.

The Society of Indian Automobile Manufacturers (SIAM) has been expressing apprehension over speculations that in the upcoming budget, higher taxes could be imposed on diesel passenger vehicles as the subsidized fuel has been benefitting affluent drivers.

Domestic and foreign car manufacturers established in India, such as Ford India and Renault India, also have supported the stand taken by SIAM on the diesel taxation issue.

Media reports quoted Ford India President and MD Michael Boneham as saying that the automobile industry is the one that is investing heavily in the country; therefore the higher taxes are going to affect the industry negatively.

Renault India Managing Director Marc Nassif was quoted as saying that a significant part of the product portfolio consists of diesel cars and if the government is to change their policy and increase the excise or levy any other tax, then the subsequent demand may be less than what has been projected.

Mahindra & Mahindra had termed the calls for imposing additional tax on diesel vehicles as “retrograde,” as any such move will only impede growth of the industry, which has had a difficult year in 2011.

Rising prices of metals like steel, aluminum and copper have also directly affected the Indian auto industry last year.

Steel, aluminum and copper are all used in auto manufacturing. Steel is widely known as the basic metal component of cars. Lighter and stronger metals such as aluminum and magnesium are used for many parts in the car manufacturing. Copper is mainly used for wiring.

The automotive industry’s use of steel tube has been increasing since the beginning of 1990s, especially in safety structures and safety-related components of vehicles.

A modern car with components made of aluminum can be 24 percent lighter than one with components made of steel, which also allows fuel consumption to be reduced by 2 liters per 100 kilometers.

Reports suggest that during last year, regulatory and environmental hurdles, land acquisition delays and social opposition hampered growth for India’s steel industry.

However, domestic players are finding ways to expand capacities. India is targeting 120 million metric tons of domestic steel output at the end of 2012, from about 70 million tons in 2009/10.

TC Malhotra contributes to MetalMiner from New Delhi.

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