As per the National Manufacturing Policy, manufacturing contributes about 16% to the GDP, and the government is pooling in efforts through the ‘Make in India’ campaign to increase it to 25% by 2022. According to statistics on the ‘Make in India’ website, automobiles, as a sector, contributes to 7% of the GDP. Though automobiles is considered a single sector, it comprises of diverse sub-sectors and the needs of each of these are quite different.
The growth in CVs is based on industrial output and economic growth. An announcement on increased spending on infrastructure may improve sentiments. Improved manufacturing activities, falling diesel costs and lower interest rates are expected to improve the demand for CVs.
Over half the trucks plying on our roads are overloaded; the government should enforce stricter norms on loads. The government also has to focus on stricter emission laws and encourage replacement of CVs older than 12 years.
A rationalised tax structure could reduce the time spent by trucks crossing state borders, reduce logistics cost and improve industrial output. Implementation of GST is a crucial reform.
While the growth of industrial output affects the CV segment, purchase decisions in passenger cars are usually dependent on disposable incomes. The sentiment in the passenger vehicle segment also depends on the cost of ownership, which can improve by reducing inflation and interest rates. De-regularisation of fuel prices has had a positive impact on the segment by reducing the total cost of ownership. The halt of excise cuts is expected to have a short-term impact but the segment will need support through a rationalised excise duty. Even in this segment, the government needs to incentivise replacement of vehicles older than 12 years.
The two-wheeler segment is driven by declining interest rates, distribution of rural economy and growth. If the government focuses on development of the agricultural sector and drive employment, it may increase disposable income in rural areas, which, in turn, will increase the demand for two-wheelers.
The tractor segment is largely dependent on agricultural sector. Industry expects a holistic Budget allocation to improve agricultural productivity through easy financing, mechanisation, technological innovations, agricultural research and strengthening irrigation. Growth in the agricultural sector can boost the tractor and farm equipment segment.
The automotive sector is sensitive to policies that apply to primary industries which supply to the sector. Through various pre-Budget memorandums, industry has suggested removal of customs duty on alloy steel, aluminium alloy, secondary aluminium alloy and mild steel; import duty on butyl acrylate which is not manufactured in India and rubber which is a primary material for tyres. Component manufacturers hope for a cut in excise duty and diesel input credit for power generation, which can help them build exports. MSMEs have a high presence in the components industry, which should be a focus area for the government.
According to the statistics on the ‘Make in India’ website, the industry is estimated to be the third-largest in the world by 2016, so it crucial for the government to support the sector’s fast growth.
The author is head, automotive sector, KPMG in India. Views are personal