ASSOCHAM raises concern over rollback of excise sops

 The Dollar Business Bureau

Despite a recovery in November 2014, commercial vehicles sales in India are down over 7% y/y in April-November 2014

  The Associated Chambers of Commerce & Industry of India (ASSOCHAM) has said that higher excise duty on consumer durables and auto can be disastrous for India’s exports and economy. In a statement, ASSOCHAM has expressed concern over the excise duty hike on auto and consumer durables saying that such a move is not in step with the spirit of “Make in India”. D.S. Rawat, Secretary General, ASSOCHAM, said, “Make in India’s first priority should be to revive industrial growth through lower cost of production and lower price tag for the consumer so that demand can be revived.” The excise duty on small cars, scooters, motorcycles and commercial vehicles was reduced to 8% from 12% previously. And in the consumer durables sector, excise was reduced to 10% from 12%. In June 2014, the new government had extended the duty concessions by 6 months to December 31, which, contrary to industry expectations, is now not being further extended. ASSOCHAM said that at a time when the manufacturing output has been declining by over 4% (in October 2014) with consumer durables reporting a huge drop of over 35% and motor vehicles segment a fall of 9.8%, bringing these segments into a higher excise duty regime will spell a death knell for consumer demand and industrial growth in India. It is expected that a return to higher excise duties will lead to an increase of around 6-8% in car prices across models and a significant increase in prices of consumer durable items as well. The decision to end the excise sops was taken to help the government raise additional revenue in the remaining three months of the current fiscal to achieve the fiscal deficit target of 4.1% of GDP. However, the industry body felt that this move would not result in higher tax collections either. “To the extent, the government seeks higher duty, the sales volume will drop beyond that… it would thus be a counter-productive move even from the taxation point of view,” said Rawat. He also warned against protectionist measures taken by the government. Rawat said that instead of asking government departments to give preference to electronic items from domestic companies in their procurement policy, the government should encourage Indian companies to improve quality and competitiveness. The move to buy from local companies is against the spirit of “Make in India” and may lead to retaliatory action by countries such as USA in different sectors such as outsourcing, he said.      

 This article was published on January 2, 2015.