With Finance Minister P Chidambaram slashing excise duties on some sectors in the Interim Budget 2014, marketers have started passing off the benefits to the consumers. The first of the price cuts are being carried out by automobile makers, and at the time of filing this report, Maruti, Mahindra, Honda, Volkswagen and Hyundai have already slashed their vehicle prices by Rs 8,000 to Rs 1.35 lakh, depending on the models.
The Finance Minister has cut down the excise duty on small cars, scooters, motorcycles and commercial vehicles to 8 per cent from 12 per cent in a bid to stimulate demand in the auto sector. While for mid-sized cars, the excise has been reduced to 20 per cent from the earlier 24 per cent, the duty on large cars now stands at 24 per cent from the earlier 27 per cent.
In addition to the automobile sector, excise duty on consumer durables has also been reduced to 10 per cent from the earlier 12 per cent. Experts, however, feel that the excise cut will not lead to very significant benefits to the sector nor will it be a key determinant in augmenting sales.
As sluggish demand continues to cripple the auto sector, the bulk of the inventory that was expected to be sold at a higher price, will now be sold at a lower price. Analysts and media reports indicate that this will result in loss of approximately Rs 600 crore to the auto sector.
As far as the consumer goods sector is concerned, even as excise duty has been cut by 2 per cent, the average price of home appliances has increased by 10-12 per cent over the last two years. Thus, this cut will not directly benefit the sector.
Only time will determine whether the excise cuts (which might also be temporary due to possible change in regime after the General Elections) will augment demand in the two sectors.
Will media spends from the two sectors increase as well?
People working and analysing the two sectors have clearly indicated that excise cuts will not have any impact on the media spends. The reasons are primarily the indirect link between both the factors.
“I don’t see any linkage in the media spends with the excise cuts in the auto sector. Media spends would increase at the time of new launches. It is unlikely that spends would directly be impacted from the excise cut. In fact, the sector is expected to suffer loss in the short run due to unsold inventory,” said Yaresh Kothari, an auto analyst with Angel Broking.
Observers believe that since the window of the Budget is only till June 2014, it is unlikely that announcements will have any long term impact, as that would finally depend upon the new regime in power.
Chandroo Kalroo, CMO, TTK Prestige too said that there will be no effect on media spends. “The spends depend more on sentiment and the sentiment is likely to improve only post Elections. I don’t see any increase in spends before that,” he added.
According to Sandipan Ghosh, CMO, Ruchi Soya, “The spends from the auto sector might increase only if there are new launches. Meanwhile, the sentiment is anyways low in the consumer durables sector, therefore, the difference in spends is unlikely. The difference, if any, will be very restricted.”
The media spends, therefore, are likely to remain the same and should be least affected (increase or decrease) from both the sectors primarily due to the small window of the Interim Budget and short term losses to be faced by both the sectors as a result of the excise cut.