India Car Prices To Rise With New Excise Tax

Major car manufacturers will raise prices across the board in India after the government announced plans for an increase in the excise tax, Indian newspaper The Hindu reported.

The excise hike, announced Friday by Finance Minister Pranab Mukherjee, came as a disappointment to the Indian auto industry, but the absence of new taxes on diesel cars and the retention of a fuel subsidy somewhat offset the sting, Reuters reported. The excise duty on cars will increase from 22 percent to 24 percent under the new budget.

The retention of the fuel subsidy comes as a boon to the auto industry and India's drivers, as Mukherjee is seeking to reduce Indian subsidies from their current level of 2.5 percent gross domestic product to under 2 percent in the next year. The increased excise on cars is part of an across the board 2 percent excise increase on non-oil goods.

Excise duty also increased from 60 percent to 75 percent for completely build large cars and SUVs with a value over $40,000, according to Reuters. The increase is expected to help Indian manufacturer Mahindra and Mahindra, Ltd.

Other forms of transportation like two-wheelers and imported bicycles are also subject to the excise. However, the struggling civilian aviation industry was exempt from any increases in excise and allowed commercial borrowing of up to $1 billion.

Hyundai and Toyota have already announced increases in prices in response to the increased excise, while General Motors Co., Maruti Suzuki, Tata Motors Ltd., Honda Motor Co., Ltd., Ford Motor Co., and Mahindra and Mahindra Ltd. were all in the process of reviewing the budget proposal before finalizing their decisions, The Hindu reported. BMW, Mercedes and Audi are all expected to make similar announcements as well.

This is a budget for growth with stability. Stability on the prices front and on macro economic front at a time when there is growing uncertainty in the global economy, Mukherjee said in a press release.