Budget 2020: Here’s what Indian auto industry expects from the Finance Minister this year
The Indian auto industry hopes that the Union Budget will finally give it a GST rate cut, which manufacturers have been seeking for the better part of 2019.
India’s automotive industry is going through its worst-ever slowdown in two decades. According to data by Society of Indian Automobile Manufacturers (SIAM), the total passenger vehicle sales during 2019 declined by 12.75 percent to 29,62,052 units compared to 33,94,790 units a year ago. Two-wheeler sales were equally dreary with a drop of 14.19 percent.
With the ongoing BS-VI transition, prices are only set to increase, which will act as a further deterrent to prospective customers. The slowing economy has also reduced rural demand, which has traditionally been a strong point for two-wheelers.
The industry is hoping for bold measures from Nirmala Sitharaman’s Union Budget this year. While manufacturers have been seeking a cut in GST rates for the better part of 2019, several players are still hoping for a miracle.
The 2006-07 Union Budget, presented by the then Finance Minister P Chidambaram, is often considered as the turning point for the Indian automotive industry. Back then, the government had introduced a lower taxation strategy based on the length of the car and engine displacement.
While last year’s Budget did not hold much to the auto industry, experts in the sector tell us they are expecting a lot from Finance Minister Nirmala Sitharaman this year.
Lower GST rates
This year, automakers are once again hoping for a cut in GST rates.
Rajan Wadhera, President of SIAM, said, “Increased cost of BS-VI may affect demands. Hence, we have also requested the government to reduce GST rates for BS-VI vehicles effective April 1 from 28 percent to 18 percent.”
With the volumes ending in red for almost every car and two-wheeler maker last year, manufacturers are hoping to attract customers with a reduced tax, which will help in bringing down the overall acquiring cost for a customer.
“Without a doubt, the Indian automotive industry is one of the prominent growth drivers of our economy. It contributes about seven percent of the country’s GDP. A reduction in the GST rates, which will help arrest the incessant price hike, in vehicles would be the right step at this juncture.” said Suresh KV, President of ZF India, a leading German car parts maker, which has 21 manufacturing centres in the country.
A focus on electric
In August 2019, the GST Council reduced the tax rate on electric vehicles from 12 percent to five percent – a landmark move by the government. This was also followed by the council slashing GST on electric vehicle chargers from 18 percent to five percent.
However, further work towards electric vehicles is still needed, especially when it comes to batteries.
Speaking to AutoStory, Ravneet Phokela, Chief Business Officer of Ather Energy, said, “Today, when you buy a second battery for replacement you have to pay GST of 18 percent. But, when you buy it with the vehicle, it’s five percent. So, rationalising GST on second battery is the need. Also, if you buy a car via a corporate lease, you get tax deduction but surprisingly, absent for scooters. For every car sold in our country, there are six two-wheelers. If not for the entire scooter category, the government should allow corporate lease for customers to avail the benefits of tax subsidies.”
Suresh KV adds that the electric vehicle segment has high potential in India and the government should provide incentives to private buyers of electric and hybrid cars and come up with policies to boost charging infrastructure.
Auto ancillary segment
At present, the auto components industry in India has 850 companies registered under the Automotive Component Manufacturers Association (ACMA). Auto ancillary bodies contribute significantly towards employment generation and exports of our country, which directly adds to India’s GDP.
With the government of India aiming for a $5 trillion economy by 2025, this sector will be a key contributor.
Deepak Jain, President of ACMA, said, “The manufacturing industry is expected to add $1 trillion to the government’s $5 trillion target. It is critical that steps be taken to get the automotive industry back on track. The automotive industry accounts for almost half of India’s manufacturing economy, while the component industry accounts for a quarter. We are hopeful that the government would consider our long-standing recommendation of 18 percent GST on all auto components as also extend impetus to R&D and indigenous technology development.” Currently, 40 percent of high value parts are taxed at 28 percent.
The industry body believes that a fund should be created for supporting indigenous technology development. This fund can be used not only to meet new regulations on safety, emission and environment but also to develop e-mobility solutions.
ACMA also believes retaining the weighted tax deduction on R&D expenditure is critical. Besides that, it wants exemption on import duty on auto component prototypes to encourage domestic R&D and testing.
Further, to boost the auto components industry, several experts also believe that the definition of micro, small, and medium enterprise should be changed to allow a larger number of companies to avail government incentives. As per the proposed definition by ACMA, these companies should be categorised on the basis of their annual turnover instead of investment in plant and machinery as:
- Micro enterprise: Annual turnover that does not exceed Rs 5 crore
- Small enterprise: Annual turnover of more than Rs 5 crore but not exceeding Rs 75 crore
- Medium enterprise: Annual turnover of more than Rs 75 crore but not exceeding Rs 250 crore.
Need for a scrappage policy
One of the needs of the hour, experts say, is a scrappage policy. The government has been talking about tabling a scrappage policy for over six years now, but has failed to make any concrete development.
“An incentive-based vehicle scrappage scheme could also act as a catalyst to effectively spur the demand. I am positive that the government will steadfastly rollout the scrappage policy, which would be effective to generate demand,” said Suresh.
Rajan of SIAM agreed and said, “We have urged the Finance Ministry to consider announcing an incentive-based scrappage policy and also increase budget allocation for ICE bus procurement by state transport undertakings.”
Toyota, one of the largest passenger vehicle makers in the world, which sells products like the Fortuner and Innova, also agrees that a scrappage policy is the need of the hour. However, the Japanese carmaker believes that the auto industry is willing to share its portion towards realising such scrappage policy as per the government’s suggestion.
The Union government, in its draft scrappage policy, had suggested that it will not provide any subsidy to the public. The draft also highlighted the fact that manufacturers will be free to offer any discounts/subsidies.
Toyota believes this will eventually have a more sustainable impact on the environment as old, pre-BS-I vehicles are still plying on the road, adding to air pollution.
Income tax, ESOPs, and more
Naveen Soni, Senior Vice President of Sales and Services at Toyota Kirloskar Motor, said, “Another thrust area would be to extend the income tax benefits available for electric cars to other vehicles as well or to extend the depreciation benefit currently available only to companies and professionals to personal customers also. This kind of stimulus will not have a significant impact on the government revenues in the immediate future while it can effectively improve consumer sentiment and help pull forward demand during the difficult period of BS-VI transition that will see prices of most vehicles go up.”
These temporary measures can be a quick way of improving the overall sentiments of the industry and help revive the demand. However, India needs a strong intention to move towards a greener future, rather than work in sudden spurts. Rajiv Bajaj, Managing Director of Bajaj Auto, has been very vocal about overregulation in the Indian market.
Even ride-sharing platforms are requesting support from the government. sRide, a carpooling startup, hopes that the government will reduce the GST rate on the services sector.
On the other hand, Lakshna Jha, CEO of sRide, told AutoStory that ESOPs are essential in attracting talent for early-stage startups. “It would be a great support for startups if ESOP taxes are reduced to a much lower level,” she said.
(Edited by Saheli Sen Gupta)
