Wednesday, December 31, 2014

EXCISE DUTY REVOKE...UNJUSTIFIED -INDIAN AUTOMOBILE INDUSTRY

I don’t understand how the Indian government’s rationales behind any sector decision are being formulated particularly when that Industry or sector is growing. As a macroeconomic researcher and as journalist I hold the right of pointing to the mistakes being committed which will have a long term affect on the industry or economy. We have seen historically these types of mistakes have been committed by the government and the industry suffered a prolonged crisis. The point of discussion is that not only the particular sector gets banged against the wall but also the ancillary industries also gets  affected and the affects rolls out to employment opportunities either drying up or pink slips are being handed over.

Last year UPA government hiked its duties on SUV’s and now again the same thing is being proposed by the current government. When crude prices are low and very much supportive for the Indian buyers to buy their dream car then does this rate hike proposal sounds better. In these low crude prices its prudent to go for duty reduction so that automobile sales increases which leads to ancillary industries demand and growth simultaneously. When crude prices are low and we all know that crude prices would remain on the lower side then its clear that people would plan to buy automobile. Increase in volume would result multiple taxation earnings for the government as volumes pickups in raw material consumption and production of various end user based products.

If we make a quick look towards the automobile market performance we witness clearly that over the last couple of years slow down of the Indian economy followed with high interest cost and prices have deterred the buyers from the market.

We should not forget that automobile is one of the asset classes which is directly linked with interest rates. Hence when we all projecting for a rate cut over the next 1 years time frame, at the same time when crude prices are low the reducing or keeping the taxes unchanged would have spooked more buyers resulting more production and consumption.  That’s why I raised the question on the very beginning about the rationale behind the hike/revoke of benefits of duties and taxes for the automobile when the industry is very much well positioned for growth.

We are all talking about Indian economic growth and using very strong phrases and theories but did we ever calculate the place from where this growth will generate. If, domestic people are unable to buy ,then how the government earns its revenues from slow moving industry. Now this same statement also eradicates the economist theories who are justifying the rate hike to fill up the government pocket through high taxes incomes. Now when we are increasing the taxes and duties of an industry then obviously the demand of the product will take a hit. Now at the same time the government is inviting FDI investors to start manufacturing in India. If the market becomes less competitive then how it makes senses for them to start manufacturing here. We always forget that an economic or an industry growth does not happen only based on one sided policies.  When the Indian IT industry grew it grew riding upon the wheel of SEZ which was a tax sop based incentive scheme promoting business for the Indian economy for the long term.

Increasing taxes on various industries and products to increase government revenue is a wrong theory in today’s market conditions. When global economy is under severer slowdown then domestic consumption is the best strategy to grow the business. We are just killing the industry and the ancillary industries associated with the same. Now theory has erupted while is discussing the same with my friends. They said that if duties and taxes are being hikes or benefits are being revoked then the same would adjust somewhere as luxury goods and inferior goods have a game to play. In today’s economic era inferior and luxury goods has lost its meaning since technology has replaced the productivity and availability of the goods. Further auto mobile is the best way to grow and develop business and grow the rural connectivity. The initial price hike might appear to be negligible but it always has a long term affect on the industry and economy. Increasing duties of cigarettes is justified but not on automobile industry which is linked with multiple industries and employments.

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