Auto shares slide as India proposes 10% GST on diesel vehicles

  • Investing.com
Auto shares slide as India proposes 10% GST on diesel vehicles

Auto giants Tata Motors (NS: TAMO ) (NYSE: TTM ), Mahindra & Mahindra (M&M (NS: MAHM )), Ashok Leyland (NS: ASOK ), and Maruti Suzuki (NS: MRTI ) India (MSIL) saw their shares decline following the announcement by Road and Transport Minister Nitin Gadkari of a proposed tax increase on diesel vehicles. The proposal, announced at the 63rd Society of Indian Automobile Manufacturers (SIAM) annual convention, seeks to impose an additional 10% goods and services tax (GST) on diesel engines and vehicles as part of a plan to phase out diesel vehicles from India.

Gadkari, who is also the MP from Nagpur, stated that he would be submitting his suggestions for the tax increase to Finance Minister Nirmala Sitharaman. He outlined the government's commitment to achieving Carbon Net Zero by 2070 and reducing air pollution levels caused by hazardous fuels like diesel. The minister emphasized that cleaner, greener alternative fuels were essential for India's future.

Following the announcement, shares of Tata Motors and M&M fell by up to 4.4% in Tuesday's afternoon trade. At the time of writing this news, Tata Motors was trading 2.32% lower at Rs 620 on the BSE, while M&M was down 3.5% at Rs 1,526.70 ($1 = INR82.953). Ashok Leyland shares were also affected, trading over 3% lower at Rs 179 on the BSE. Maruti Suzuki India (MSIL), which ceased manufacturing diesel vehicles two years prior, saw its shares relatively unaffected.

Gadkari highlighted that India currently imports 89% of its fossil fuels, presenting an economic challenge for the nation. He asserted that bio-fuel or alternative fuel will be the future for India. The minister also stated that India aims to become the world's largest automobile industry by FY2027.

In 2022-23, India achieved record-high sales of 39 lakh (3.9 million) passenger vehicles and 9.62 lakh units of commercial vehicles. Gadkari noted that these figures have significant implications for the export of commercial vehicles. He also mentioned that India currently exports 52% of two-wheelers globally, with 400 startups catering to the manufacturing of these vehicles.

In order to become a leader in the automobile industry, Gadkari said that the country needs to reduce its logistics cost, which currently stands at 14-16%. He compared this to China's logistics cost of 10% and the US and other European countries' cost of 12%. The minister assured that India's logistics cost for automobiles will decrease to 9% within the next three years, which he believes will aid automobile exports from the country.

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