New Delhi: Excise duty on automobiles could be hiked by 2% in the forthcoming budget, feels Venu Srinivasan, chairman and managing director, TVS Motors.
"Yes, it could go up, though we are hoping that it will not," he said in an interview to CNBC-TV18.
Srinivasan feels that higher excise duty, in an environment of rising petrol prices and rising interest rates, could slowdown the growth momentum in the automobile sector.
"The maximum excise duty hike could be two (percentage) points to correct what was given as part of the stimulus package," he said.
However, he warns that if duties were hiked, the extra cost would be passed on to customers. "Rising commodity prices leave little cushion for absorbing the hike, he said.
Srinivasan expects two-wheeler sales to grow at a more reasonable 12-15% going forward, as the base effect would start kicking in.
Here is a verbatim transcript of Venu Srinivasan's interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee
CNBC-TV18: Do you sense that excise duties could go up for the auto sector?
Srinivasan: Yes I do think excise duties could go up by few points. We already have rising petroleum prices and rising interest rates. Hence, the rising excise duty will slow down the growth momentum that we have. We hope that the excise duties do not go up.
CNBC-TV18: What kind of duty hike is the industry bracing itself for?
Srinivasan: We expect the duty to hike by 2 points. This will be in order to correct what was given as part of the stimulus package and partly, corrected last time.
CNBC-TV18: The two wheeler industry is in a different space from the rest of the sector. The duties in that sector may be hiked but if the finance adds to a lot of schemes like NREGA, it may spell good news for two wheelers, in specific. Are you expecting to hear a lot, by way of increase in spend due to these rural programmes?
Srinivasan: The Indian economy has a couple of vulnerabilities. The fiscal deficit and the current account deficits continuing at 3.5% to 4% of the GDP are making things difficult for the finance minister. The middle class is clamoring with inflation and the people below poverty line really hit by food prices. If we do not contain the subsidies and bring about some fiscal discipline then the investments will be taken out of infrastructure and given to subsidies.
Ultimately, the economic growth will depend on infrastructure and automobile industry and two wheelers will also depend on infrastructure. While subsidies may give some relief to the two wheelers, it is not going to change the fundamental scenario.
CNBC-TV18: Do you think the finance minister might struggle to indicate a sub 5% fiscal deficit number, for next year FY12?
Srinivasan: The petroleum prices are rising, fertilizer subsidy is going to rise by 60% and food subsidy is growing. 5% fiscal deficit is going to be a very big challenge. They will have to hike the prices of some petroleum products and fertilizers. If they do that inflation will further climb, hence, they have a problem on the other side.
Inflation cannot be controlled by monetary policy alone. Internationally food prices and commodity prices are at all time high, so, it is a supply side situation and just putting up interest rates is not going to solve the problem. It is also going to make India uncompetitive in the global manufacturing arena
CNBC-TV18: If you do get that 2% excise duty hike, will it be passed down entirely to consumers or will you try and absorb some of it at the expense of margins?
Srinivasan: The entire auto industry will pass it on because commodity prices are increasing and there won’t be the cushion available to absorb part of it.
CNBC-TV18: The sales numbers of the auto industry have been criticised – the figures reflect what the dealers are stocking up and not what the end retail appetite. If this duty hikes come through, how much do you think the two wheeler industry growth rate could level off to for this calendar year?
Srinivasan: We are looking at 12% to 15% growth.
CNBC-TV18: As a former CII President, there seems to be a bit of crisis of confidence right now, both with corporate India and with governance levels in this country. How strong do you think these crisis levels? How much do you think something like the budget can do to address it at all?
Srinivasan: The budget cannot do much about this issue. However, it certainly has dented confidence, nevertheless we will overcome it. Fundamentally, if you start pricing natural resources and public good like roads or airways or pipelines, the chances of corruption will go down. Confidence can be resorted quickly. The prime minister is firm about doing it and it can quell quickly.
CNBC-TV18: On the issues of GST and DTC, what do you expect to hear from this budget? What would you be happy with and what is the realistic expectation along those lines?
Srinivasan: GST is going to struggle because the states have to come on board. It requires constitutional amendment. Right now, both Congress states or UPA states and BJP states and the others were opposing it. It is essential for the long term competitiveness of the economy, to bring down the transaction cost. The finance minister is committed to getting it done. However, I am not confident we are going to get a holistic and practical GST in this budget.
As far as DTC is concerned, we do have some issues about general anti-avoidance rules. The issues are particularly about the arbitrariness and discretion that will be given to the accessing officers to substitute their own value of incomes or transactions and then levy a tax on it. It is still a matter of some concern. We appreciate the governments efforts and concern on tax collection but there has to be a balance between the two.
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