Budget 2016: Woes for Passenger Vehicle Industry

One of the manufacturers to be majorly affected is Mahindra with its bestselling Scorpio and XUV500 set to witness a major bump in prices under the new taxation policy. Dr. Pawan Goenka, Executive Director, Mahindra & Mahindra said, "On the face of it, imposing up to 4% cess for Passenger vehicles is a concern for the auto industry. However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles."

So in effect, small petrol cars will attract the 1% infrastructure cess witnessing a marginal hike in prices, while small capacity diesel cars under Rs. 10 lakh will attract a 2.5% hike. However, the cars most affected are the ones above the Rs. 10 lakh mark, which will attract the additional 1% luxury tax. That means, petrol cars above the Rs 10 lakh price point will have to bear a 2% cess, and diesel cars above Rs. 10 lakh - 3.5% and higher displacement cars - regardless of fuel type - will have to then bear a 5% cess under the new policy.

Most manufacturers say they are studying the Budget before taking any decisions, but we have to assume that they will pass on this burden to the consumer. So how does this affect ex-showroom prices? The highly popular Maruti Suzuki Alto 800 which will now attract the 1% additional tax, will see prices jump approximately Rs. 2583 to Rs. 2,60,896. Similarly, the Hyundai Grand i10 diesel will attract the 2.5% tax, pushing its price to Rs. 5,76,932, a Rs. 14,071 price increase. The difference further increases for vehicles above the Rs. 10 lakh mark as SUVs like the Toyota Fortuner get dearer by a hefty Rs. 1,20,860 attracting an overall 5% jump in tax. That takes the base price of the Fortuner to Rs 25,38,060. All prices are ex-showroom Delhi and the increased prices indicative. The new tax policy will also affect the upcoming Innova Crysta in a big way.

Vikram S. Kirloskar, Vice Chairman, Toyota Kirloskar Motor says "The tax is okay - they said it's a green tax - for pollution - so (it is okay) provided this money is used to remove Euro I or Euro II cars off the road. As long as the tax money is used for the hybrid or electric cars and removing old vehicles off the roads - BS I and BS II cars off the roads, we are okay."

The only relief came for eco-friendly vehicles as the tax exemption on these vehicle parts will not expire on March 31 and this benefit will continue. Other vehicles that are part of the exemption include three wheelers, electrically operated vehicles, hybrid vehicles as well as hydrogen vehicles based on fuel cell technology. In addition, Motor vehicles which after clearance have been registered for use only as cabs, cars for physically handicapped persons and vehicles cleared as ambulances or registered for use only as an ambulance will be exempt from the additional cess.

Two-wheeler and commercial vehicle makers could benefit from the Union Budget's focus on rural infrastructure, and the Rs. 97,000 crore allocation for roads and highways. The Finance Minister also laid out plans to promote entrepreneurs who want to operate private buses on several routes, in a bid to boost public transportation and last mile connectivity