1. Budget 2018: Import duty hikes, focus on MSMEs, farm push to spur domestic auto industry growth

Budget 2018: Import duty hikes, focus on MSMEs, farm push to spur domestic auto industry growth

Better farm income realisation, allocations for APMCs (agricultural produce market committees), thrust on rural developments, focus on roads and highways with higher allocation, and measures to boost MSMEs in the Budget are expected to benefit two-wheelers, tractors, auto components industries. Though the proposed increase in the customs duty to 15% from 10% on imports of […]

By: | Chennai | Published: February 3, 2018 1:33 AM
Budget 2018: The thrust on boosting rural development and farmer welfare remains a positive for the farm sector. Budget 2018: The thrust on boosting rural development and farmer welfare remains a positive for the farm sector. (Reuters)

Better farm income realisation, allocations for APMCs (agricultural produce market committees), thrust on rural developments, focus on roads and highways with higher allocation, and measures to boost MSMEs in the Budget are expected to benefit two-wheelers, tractors, auto components industries.

Though the proposed increase in the customs duty to 15% from 10% on imports of motor vehicles, motor cars and motorcycles as well 15% (10% earlier) import duty on specified auto parts and 25% (20% earlier) import duty on CBU vehicles would have an impact on the premium segment, the move will help domestic parts makers, two-wheeler, three-wheeler and commercial vehicle makers, said industry sources.
According to an analyst with Icra, the Budget’s focus on enhancing farm income through multiple measures and allocations for strengthening of APMCs and gramin agricultural markets for better price discovery with easy credit availability will help people in the rural areas to go for two-wheelers.

Similarly, the thrust on boosting rural development and farmer welfare remains a positive for the farm sector. Continued healthy allocation in schemes aimed at enhancing irrigation penetration and increasing the coverage of crop insurance schemes to improve crop yields with better incomes will help the growth of farm equipment, particularly tractors. The proposed hike in customs duty on imported truck & bus radial tyres, coupled with the recently announced anti-dumping duty, will improve competitiveness of Indian tyre manufacturers, against Chinese imports, the Icra analyst pointed out.

According to Care Ratings, the increase in import duty on CKD version of motorcycles, motor cars and motor vehicles, key auto parts and radial tyres is expected to help domestic industry in a big way. While the higher allocation towards infrastructure will help the commercial vehicles sector, higher allocation towards livelihood and rural development and employment generation will have a positive impact on two-wheelers, three-wheelers small commercial vehicles as well tractors.

The auto component industry is a highly fragmented one and was estimated to be valued at around `2.6 lakh crore ($39 billion) in FY16. This industry has witnessed growth of 8.6% on a Y-o-Y basis and contributes 2.3% to the GDP. With the increase in the import duty on specific parts, the auto components industry, mostly MSMEs, is set to benefit immensely, Care Ratings said.
Turab Ali Khan, industry manager, mobility (automotive & transportation) practice, Frost & Sullivan, said the impact of import tax increase will affect auto OEMs which have not yet localised sourcing of engine and transmission parts. Companies such as Volvo and Scania would be impacted as they assemble CKD units of buses (HS code 8703). Also, motorcycle companies like Triumph would be affected due to the increase in tariff for CKD units (HS code 8711).

Taxes for mini trucks (HS code 8703) have also been increased, but it is not going to have a major impact as all the OEMs have local manufacturing, Khan said, adding that the increase in the import tariff for truck and bus radials is likely to be detrimental for Chinese imports.

According to Rajeev Singh, partner, Deloitte India: “Increased allocation for infrastructure such as national highways (target completion in FY17-18 is -9000 KMs) and Bharat Mala project (target completion of 35,000 KM in Phase 1 at cost of `5.35 lakh crore) for seamless connectivity should give much-needed push to the sector, especially M&HCVs (medium and heavy commercial vehicles). Good rural focus (credit for agricultural activities increased from `10 lakh crore to `11 lakh crore ) will primarily help boost retail growth in rural market and thereby bring more growth in the auto industry.”

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