Ford’s India unit and Tata Motors will increase prices of all its commercial and passenger vehicles in proportion to the hike in the excise duty.
Finance Minister Pranab Mukherjee said on Friday that excise duty on cars currently taxed at 22 percent would increase to 24 percent, and excise duty on cars currently taxed at 22 percent with an additional 15,000 rupees per vehicle charge would increase to 27 percent.
“The announcement of a 2% increase in excise duty is disappointing and not favorable towards the auto industry,” Michael Boneham, president of Ford India said.
“This will lead to increase in prices of our products and will have negative impact on consumer confidence.”
Petrol and diesel driven vehicles having length exceeding four metres and engine capacity of over 1,200 cc and 1,500 cc respectively will now be charged with an ad valorem duty of 27 per cent, instead of the earlier 22 per cent and a fixed duty of Rs 15,000.
Other auto makers, including commercial vehicle and two-wheeler makers, are also expected to announce similar price hikes soon, as none of them would want to take on the additional tax burden.
Shares in market leader Maruti Suzuki (MRTI.NS) hit their highest level since January 2011 and all-diesel manufacturer Mahindra and Mahindra (MAHM.NS) saw its stock rise as much as 6.1 percent.
Overall car sales in India will likely only post marginal growth in the fiscal year that ends this month, but are expected to grow by more than 10% in the coming fiscal year, driven by increased salaries and a rapidly growing middle class.