1. Union Budget 2017 fails to excite automotive sector but brings in fundamental improvements

Union Budget 2017 fails to excite automotive sector but brings in fundamental improvements

While the automotive sector had a fair bit of expectations from the Budget 2017, none of them have been fulfilled directly. That however doesn't translate into a negative takeaway for the automotive industry as there are some announcements that will have an indirect effect on vehicle sales. Here's a list of the announcements that could have a positive impact on the Indian automotive sector.

By: | Published: February 1, 2017 4:24 PM
Arun Jaitley announcing the budget for the automotive industry Arun Jaitley announcing the budget for the automotive industry

When the Finance Minister, Arun Jaitley started reading the Union Budget today morning, stakeholders of the automotive industry were hoping for the announcement of some major reforms. Recovering from demonetisation effects, hardly anyone expected a shot-in-the-arm announcement but something that could bolster the sector was definitely on the cards. To the disappointment of many, Arun Jaitley didn’t make any big ticket announcement for the automotive sector. In fact, he almost entirely overlooked the manufacturing sector, to which the automotive sector is the largest contributor.

What was expected?

Key expectations from various stakeholders included a reduction in tax on R&D expenditure, reduction in excise on importing components such as lithium-ion batteries, increase in subsidies on electric and hybrid vehicles and a reduction in interest rates to boost sales. The component sector too expected a lower GST rate and exemption on local R&D. Unfortunately, nothing on these lines was announced by the Finance Minister. He cited the upcoming implementation of GST from 1 April, 2017 to be the reason for not making changes to the excise and duty structures.

He did announce a reduction in tax on Liquefied Natural Gas (LNG) from 5 % to 2.5 % considering its future importance for transportation. However, LNG presently accounts for a small share of the overall fuel consumption by the road transportation sector and hence won’t have any immediate considerable effects.

What we got?

The lack of any announcements directly affecting the automotive industry doesn’t mean there is no takeaway at all for the automotive sector from the Union Budget 2017. There are some announcements that will have an indirect impact on the automotive industry and mostly in a positive manner. Here are some of such key announcements that would bolster the fundamentals of other elements related to the automotive environment and hence benefit vehicle makers and suppliers.

The Government showed a major focus on improving infrastructure by announcing Rs 97,000 crore for development of roads. The Government showed a major focus on improving infrastructure by announcing Rs 97,000 crore for development of roads.
  • The Government showed a major focus on improving infrastructure by announcing Rs 97,000 crore for development of roads. Of this figure, Rs 55,000 crore has been earmarked for development of roads and highways. This development is expected to push up the demand for commercial vehicles (CV), thereby helping the automotive sector. In addition, the announcement to provide affordable housing too will give a push to CVs and construction machinery.
  • Personal income tax under the new budget has been lowered in the bracket of Rs 2.5 lakh to Rs 5 lakh from the earlier 10% to 5%. Using some of the rebates available, the tax liability can be reduced by more than half to zero in some cases. Increasing the disposable income will have a good effect on vehicle sales, especially in rural areas.
    The abolishing of Foreign Investment Promotion Board (FIPB) is a step in the right direction as it’s expected to improve the ease of conducting business. A friendlier environment for business will lead to more investments from international markets.
  • The Government has tried to boost skill development by announcing to increase the establishment of skill centres by ten folds. This should have a significant impact on the issue of automotive companies struggling to find the required number of employable candidates.

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