For the first time in history, a Union Budget has classified cars as small and big.
While such classifications do exist around the world (Kei cars like Suzuki Wagon R with engines below 600 CC enjoy a lower duty structure in Japan while Americans are used to paying a gas guzzler tax for big cars) this is new for a developing market like India.
Obviously, this has polarised the passenger car industry. While Maruti Suzuki has five small cars that can benefit from the 4000 mm/1200 cc petrol engine classification, Hyundai and Tata Motors have one car each (Santro and the Indica Diesel) that benefits.
Needless to say, these are the top three car makers in India. Those car makers who depend upon upgradation (replacement market) will not be too happy with the budget outcome.
The buying patterns are going to change and it is difficult and time-consuming for the industry to change and adapt to it.
However, the silver lining is that Japanese car companies are used to artificial duty structures and they will be in a better position to leverage their existing model line up to change their India strategy.
Normally, dual taxation is implemented because of congestion (as in Japanese cities like Tokyo needs small cars) or for environmental reasons. From experience, car makers use technology (such as turbo-chargers) to ensure that small capacity engines produce adequate power and meet the emission norms.
Electric cars, hybrid propulsion manufacturing and commercial vehicles were not dealt with the budget - unfortunately.
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