Over the years, particularly since the year 1991, the form and content of Union Budget has undergone a metamorphosis from being an exercise of increasing the tax burden to rationalisation of taxes. The budget, now-a-days, is not about levies and taxes alone, it sets out the social and economic agenda for the country in addition to be a stocktaking exercise. No wonder, the people now postpone their purchases in anticipation of further tax reduction in keeping with the rationalisation of taxes undertaken in the last ten years or so. The Budget equally excites the industry and businesses in the hope of its offering goodies for them.

The automotive industry and, for that matter, car customers are, therefore, no exception, when it comes to the expectations from the Union Budget. There has been an air of expectancy for the last two years that the excise duty on cars would be brought down to 16% at par with the excise duty on other motor vehicles. This, however, has not happened. By the time this issue reaches you, the Union Budget 2006 would have, perhaps, already been presented by the Finance Minister. We fervently hope that the Budget will incorporate the proposal for reduction in excise duty to 16%.

Needless to mention, the car industry is the barometer of level of industrialisation and technology attained by a country. The success story of the USA, Europe, Japan, Brazil and South Korea, who piggybacked the car industry to take their economies to new levels of growth and development, bears this out. The importance of automotive industry in national economy in terms of the employment generated by it and its contribution to industrial output, GDP and the central & state exchequers, needs no reiteration. The advent of major auto players from across the globe has been has been a trigger for galvanising the Indian automotive industry and other sectors, in particular, the auto component and auto tyre industries. The car industry has also helped improve management practices and technology to a great extent. Moreover, the car has become a need in the context of fast changing scenario where the time is the essence. It cannot be treated as luxury, especially due to increased mobility arising out of fast pace of economic activity and expanding geographical spread of cities, urban and semi-urban areas. Lack of reliable, adequate public transport across the country makes even a stronger case for the reduction in excise duty on passenger cars. Conflicting reports are emanating from the media on this issue. Yet, I remain optimistic that the forthcoming budget will address the long-standing need for rationlisation of excise duty on passenger cars at identified CENVAT rate of 16%.

While we must appreciate that the rationalisation of customs and excise duty at the Central level has progressed at a steady pace over the years, the same cannot be said about the taxes and levies at the State and local levels. There are a host of taxes at the State and local levels. Multiplicity of taxes apart, tax rates are not only high but vary from State to State. Ideally, VAT at State level should have replaced all such taxes. However, it has not happened. The rates, provisions and procedures of VAT differ from State to State and other taxes in the forms of surcharge, turnover tax, octroi, entry tax, etc. continue to be levied. As a result, a common Indian market, which would have gone a long way in removing impediments in the way of faster growth, remains elusive. We do realise that the financial health of majority of States is not something to write home about. However, resorting to additional taxes every now and then creates uncertainty for the industry and customers alike and leads to vicious circle of stagnation, inefficiency and corrupt practices, as against growth, efficiency and compliance. Taxes are no substitute for efficiency and delivery.

Service tax and fringe benefit tax (FBT) are the other two major issues that have been bugging the automobile retail trade and service industry, in particular. A great deal of confusion abounds inasmuch as these tax laws are being subjected to different interpretations by different officers and field formations. While the Finance Minister has given indications from time to time that FBT will be simplified, we would expect this tax to be removed altogether from the statute book. Similarly, in the case of service tax, there are a number of grey areas that are open to various interpretations.

I hope, these major issues of concern to the industry and trade will be addressed by the Finance Minister in his budget proposals. Time is ripe for the Finance Minister to come up with bold initiatives to remove niggles and hurdles to pave the way for faster and sustained growth. The Indian economy has been doing pretty well for the last 3-4 years. Everyone, international experts included, is bullish about the Indian economy. RBI, which has been cautious and, at times, conservative in its GDP growth projections, has also revised its earlier estimates of GDP growth at around 7.0% upwards to 7.0-7.5% for the year 2005-06. Simplification and rationalisation of tax regime coupled with the renewed emphasis on time-bound infrastructure development will provide further momentum to the economic growth and development.

Adverting to the activities of FADA, while major activities undertaken by FADA are progressing very well, I am undertaking a ‘Contact Members’ programme in a big way through the medium of regional meetings at various places in the country. The regional meetings help us know and identify the issues and problems facing the automobile dealers at regional, state and city levels, for appropriate action by FADA and its member associations in various regions, states and cities. To start with, we had two regional meetings at Dehradun and Lucknow recently. The meetings were quite useful and gave us an insight into the auto scenario at these places. Following these meetings, a Council Meeting and also a Regional Meeting of automobile dealers are proposed to be held at Kolkata some time in the latter of half of March 2006. We hope to cover major states, particularly the states where FADA has not organised a meeting so far, in the next 6-7 months. I would request members to organise themselves by forming the State/city level associations. Office bearers and other senior members of FADA will be more than happy to come and interact with automobile dealer fraternity, as and when the meetings are organised by the local associations, to share their experiences and to know about the retail automobile trade scenario in various parts of the country.

I look forward to your inputs and suggestions.

With best wishes,

Binod Agarwal