Cut in ED to give relief to auto industry in India
BL reported that a 4% reduction in the ad valorem cenvat rates is a welcome relief to the auto industry to some extant, which has been reeling under a slowdown since early 2007.
While price reductions from the duty cut in the budget for small cars and two-wheelers did help shore up sales volumes in the beginning of 2008, companies faced margin pressures, given the rising cost of raw materials such as steel at that point in time. The latest duty reduction and consequent slashing of prices, coming at a time when input costs too have moderated, has given automakers more elbowroom.
That said companies may still be forced to share the losses with dealers on the sales of existing inventories. That inventory levels have been at an all-time high in the past one or two months also means more burden. The RBI's recent moves have signalled cheaper loans. But given the cash crunch and the dampened mood in the economy, it remains to be seen if all these moves will help a turnaround in auto sales immediately.
The decline in volumes, which first started with the medium and heavy commercial vehicles segment in 2007-08 has since spread to other segments as well. The first seven months of this year (April-October 08) have witnessed growth in passenger vehicle sales declined to about 5% YoY compared with the 12% growth witnessed last year. A cyclical slowdown, stiff interest rates and the more recent slowdown in the overall economy have been the key reasons for this muted growth.
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