The Telegraph
Since 1st March, 1999
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Big push for small car, thanks to oil

New Delhi, Sept. 1: With crude flaring up to record highs, finance minister P. Chidambaram today hinted the government will drive down taxes on smaller, fuel-efficient cars while raising them on older oil-thirsty vehicles.

“We will revisit the question of taxation on small cars at the earliest opportunity,” Chidambaram told CEOs of automobile firms at the annual convention of SIAM.

The minister was responding to Maruti chief Jagdish Khattar’s suggestion that duties on small and oil-saving cars should be cut amid a spurt in petrol prices.

The government taxes automobiles at 24 per cent, which is the upper end of the excise duty structure. To this is added a natural calamity cess of 1 per cent, education cess of 2 per cent and a 12.5 per cent value-added tax.

Chidambaram did not say small cars might be pampered merely because he had high oil bills on mind. The carrot can help turn the country into a hub for such models. Mavens have often talked passionately about it.

“Small car manufacturers are looking at making India a base for the global market. We have to keep pace with plans aimed at having small-car plants,” he said. Tax breaks give carmakers ' the ones present and those planning ventures here ' the incentive to get going.

Chidambaram said Toyota and Daihatsu plan to start making small cars by 2007. General Motors will launch Avio this year and another small car in 2007. Back home, Tata Motors’ Rs 1-lakh car could be out in three years.

The finance minister came down heavily on old buses and trucks, saying they should be taxed more heavily so that there is an incentive for fleet renewals. Chidambaram also promised to look at renewing tax sops for auto research after requests that such give-aways were needed to catalyse new models and future growth.

Chidambaram told auto-makers the government was ensuring the economy stayed on the high-growth path. “Seven per cent has become a base. High growth now means taking it to 8 per cent.”

He admitted that achieving it depends on investment, technology, competitive exchange rate, low inflation and benign interest rates. “But above everything, growth remains a function of investment.”

Household savings were high but the minister said much of it was not converted into financial assets and, therefore, not an investment. “If we can double financial savings, it will give a boost to the economy. Financial sector reforms in pension, banking and insurance are vital,” he said. Reform bills on the first two await Parliament’s approval.

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