On Wednesday, India’s largest carmaker Maruti Suzuki India (MSI) slashed prices of selected models by Rs. 5,000. In a statement issued by MSI, it was stated that the price reduction would be applicable to all variants of Alto 800, Alto K10, Swift Diesel, Celerio, Baleno Diesel, Ignis, Dzire Diesel, Tour S Diesel, Vitara Brezza and S-Cross. Priced between Rs. 2.93 lakh and Rs. 11.49 lakh, the new changes will come into effect from September 25 all over India. Furthermore, the reduced prices will be over and above the current promotional offers that the company offers. 

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The rationale behind the price reduction 

MSI explained that the aim of the revised prices was to pass on the benefits of the corporate tax cut to the consumers. The brokerages anticipate that the Centre’s decision to cut down the corporate tax on domestic firms will reduce MSI’s effective tax rate. In this regard, Emkay Global has pegged it at 25.2% from the earlier projection of 28% for the fiscal year 2019-20. On the other hand, ICICI Direct Research predicted an upward profit estimate of 2.6%. MSI’s discounts as a percentage to average selling price were the highest in 8 months in August soaring to 3.2% from January’s figure of 2.7%. According to MSI, the price reduction would help the entry-level customers especially due to the fact that the festive season is around. It contended that this move would lead to a boost in customer sentiment and create more demand in the market.  

Read: Auto Sector Slowdown: Industry Giants Report Sharp Drop In Sales

Auto slowdown and the corporate tax cut

The automobile sector had seen the worst slowdown in over two decades in the month of August as the domestic vehicle sales plunged by 31.6% in comparison to the same period in 2018. Subsequently, the Union government announced a reduction in the corporate tax rate. Basically, the effective corporate tax was slashed to 25.17% and the new companies making fresh investments from October 1 would be charged a corporate tax rate of only 15%. On September 20, the Society of Indian Automobile Manufacturers (SIAM) lauded this change and predicted that the local manufacturing would get a big boost. 

(With PTI inputs)

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