Tax Breaks to Kickstart Automobile Sector, Bring Relief to Steelmakers?

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These are not good days for India’s automobile sector.

A multitude of factors have resulted in depressed sales. And, as a result, the country’s steel industry has been affected too, because, needless to say, the auto sector is a major customer.

Now, after the recent interim budget, steel companies see some hope. Some of India’s steelmakers are hoping to reap the indirect benefits from India’s finance minister’s move to reduce duties on automobiles, capital goods and non-consumer durable items, as they believe demand could go up in the coming days.

In a report in the Hindu Business Line, Firdose Vandrevala, executive vice-chairman of Essar Steel India, said the proposal to reduce excise duty on automobiles in the current economic environment was a welcome step. However, “it would have been more meaningful and impactful if the excise duty on steel would have been reduced,” he said.

The chairman of SAIL, the nation’s largest steelmaker, C.S. Verma, too, has gone on record to say the budget should be looked at positively owing to its thrust on growth, which is good for the steel industry.

As MetalMiner has been reporting from time to time, India’s steelmakers have been under stress due to sluggish consumption trends in the last two years.

Some of the breaks offered by the finance minister in the Union Budget:

  • Excise duty on small cars/two wheelers/scooters/commercial vehicles has been cut from 12 percent to 8 percent
  • Excise duty on SUVs has been cut from 30 percent to 24 percent
  • Excise duty on mid-sized cars and large cars has been cut from 27/24 percent to 24/20 percent, respectively

Because of high fuel costs and cost of borrowing, automobile sales in India fell in January this year. Sales of India’s largest passenger car manufacturer, Maruti Suzuki, declined by 10.3 percent in January.

Many auto companies have started observing what are called as “no production” days, when the production lines are stopped, because of high inventories. Which means a blow to steel companies because low production of automobiles naturally means low intake of steel.

While many believe that the auto and infrastructure sectors in India will pick up even more steam once the elections are over and a new government is in place, top honchos like Mr Verma feel the decelerating car sales were just a minor hurdle for steel companies.

Lowering of excise duties on cars of all sizes and SUVs in the interim budget will provide the initial kickstart to the automobile industry. Once there’s revival of demand, larger volumes of steel will be sought, thus leading to an increase in steel consumption.

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