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February 15, 2005 Budget Expectations - Automobiles/Auto-ancillaries The automobiles sector is registering healthy volume growth across segments. Commercial vehicles, passenger vehicles and the two-wheeler market will continue to witness good volume numbers backed by sustained GDP growth, higher disposable incomes, improving infrastructure and easy financing options. Adherence to advanced emission norms and lowering tax and excise regime will ensure regular demand for these vehicles. This will ensure good growth for the auto-ancillary sector as well on the domestic front. The auto-ancillary industry has moved beyond the domestic market and has now diversified itself by increasing the proportion of exports in total revenues. Outsourcing opportunities are vast, with India being a low cost base with skilled manpower. Competition in the automobiles and auto-ancillary sector is intensifying with new players entering the arena. Barring input cost pressures, the industry is poised to register a healthy growth for the next 3-4 years. Industry demands Cut in excise duty on passenger vehicles to 16% from current level of 24%. Phasing out of vehicles over 10 years old. This would encourage manufacturers to invest in Euro-III vehicles due to higher demand. Tax sops on R&D for automobiles be extended for a few years. 150% deduction on R&D expenditure, given to passenger vehicles in the last Budget, to be extended to auto-ancillary manufacturers as well. Lower customs duty on raw materials like cold rolled steel, alloy steel and plastics to 5-10% from 15-20% levels. Import duty on commercial vehicles to be increased to 40% from current level of 20%. The domestic industry however, is not in favor of any change in import duty structure for passenger vehicles and three-wheelers. Further, the industry wishes that 25% import duty on auto-components should remain unchanged for next few years. Expectations Reduction in excise duty on passenger vehicles to 20%. Excise duty on auto-components to remain at 16%. In line with this, import duty on auto-components is expected to remain unchanged at 25%. Lower customs duty on cars and two-wheelers is expected. Basic customs duty for CKD’s and CBU’s likely to be reduced to 50% from the current level of 60%. Import duties on metals and plastics to be brought down to anything between 10-15%.

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