A pro-people Budget with a specific focus on rural development, capacity enhancement, infrastructure augmentation, and aiming for the evolution of next-generation technology in some areas. This is how the Budget FY18 presented by finance minister Arun Jaitley will be described in due course of time. Although it might not have announced any direct benefits for the automobile industry, it surely has provided a big scope of opportunity for it.
Some of the highlights of the Budget from the point of view of the automobile industry include a major focus on improving infrastructure including development of roads, decrease in corporate tax rate for MSMEs, reduction in personal income tax at the lower level, and allocation towards funding of the electric and hybrid vehicle programme through the FAME scheme.
The focus shown by the government on the development of roads itself is a major announcement, which will directly benefit the automobile industry and also lead to development of the next generation of vehicles. This is particularly expected to push up demand for commercial vehicles, and the rise in sales of commercial vehicles has a direct correlation with the development of certain sectors, resulting in growth of the overall economy.
The reduction in corporate tax rate for MSMEs will give relief to the tier-2 and tier-3 automobile component manufacturers and help them make investments for future expansion. The step is expected to fuel R&D at a very significant level.
From the consumer point of view, lower taxes are always good news. With more money to spend, the consumer sentiment is on the positive side. This is expected to boost sales of consumer vehicles and two-wheelers to an extent. More than in the metro cities, the positive impact of this step will be seen in tier-2 and tier-3 markets and rural areas.
A noteworthy step is in the direction of promoting cleaner and safer vehicles through development of electric and hybrid vehicles. The allocation of Rs 175 crore for this purpose is an incentive for automotive players.
The government will also create a better ecosystem for skill development. Automotive industry, which employs a large number of people, would benefit from this measure, and enhance the technical and managerial talent of the available pool of human resource.
However, the auto industry had some major expectations from the Budget, which remain unfulfilled. For example, the long-standing demand for incentive-based fleet modernisation scheme has again not found support in the Budget. Moreover, there was a genuine case for continuation of 200% weighted deduction on R&D expenses for auto industry, which remained unacknowledged. If approved, it would have been a big shot in the arm for companies working in this direction.
That there is no announcement over vehicle scrapping policy is a dampener. Replacement of older vehicles is a basic requirement to ensure a clean environment. It also leads to development of safer and advanced vehicles.
The importance of auto industry is well known. We drive growth, connect people, and help people meet their aspirations and earn a livelihood. India has one of the fastest growing auto industries in the world and we have immense capability as well as capacity to grow. The mix of labour which exists here itself is a big reason for us to explore new horizons. Being a participant in the national growth is a matter of pride and the auto industry has been fulfilling its role for decades.
You may also like to watch this video
An industry like this must be given the right importance through all possible measures, including favourable policies to ensure that we focus on our key role of making India a shining example of the right kind of development. A right policy is a matter of time and Budgets perhaps are the best way to ensure that policies are formed in order to promote a specific industry and address a particular cause.
Sugato Sen is deputy director general, Society of Indian Automobile Manufacturers (SIAM)