ACMA seeks clarity on MSMEs definition, creation of tech fund

On top of it, the economic slowdown has deterred domestic consumption, we hope that the forthcoming budget will help uplift both the consumer and industry sentiments.”

By:Published: January 28, 2020 10:50:57 AM

The Automotive Component Manufacturers Association (ACMA) has sought clarity on the definition of MSMEs, creation of technology development and acquisition fund, incentivising the R&D spend, investment allowance as well cut in GST rate. In the pre-budget memorandum, Deepak Jain, president, Acma, said, “The automotive industry in India is undergoing a significant transformation due to new regulations and policy changes. On top of it, the economic slowdown has deterred domestic consumption, we hope that the forthcoming budget will help uplift both the consumer and industry sentiments.”

In his budget note, Jain said that a new MSME definition will allow a larger number of companies to avail government incentives. As per the proposed definition, MSMEs will be categorised on the basis of their annual turnover instead of investment in plant & machinery/equipment. For micro enterprises — annual turnover should not exceed Rs 5 crore; for small enterprises — annual turnover should be more than `5 crore but should not exceed Rs 75 crore and for the medium enterprises — annual turnover should be more than `75 crore but should not exceed Rs 250 crore.

He reiterated the need for a uniform 18% GST rate on all auto components. Given the sector is challenged due to the prolonged slowdown, the association that represents over 850 companies in the components sector, would be provided with supportive measures that will enable growth revival and a smooth transition to the next phase in the years to come.

ACMA’s recommendations also include the creation of technology development and acquisition fund: A fund needs to be created for supporting R&D and indigenous technology development especially in light of the technological disruptions the automotive industry is witnessing. The fund could be utilised for technology development of e-mobility components, and to meet new regulations on safety, emission and environment, among others. Such a fund could also be utilised for in-house development or for acquisition and assimilation of technologies through licensing agreements and acquisitions.

To encourage domestic R&D and testing, it is important to provide exemption on import duty on auto component prototypes. Also retaining of a weighted tax deduction on R&D expenditure is critical. The 2016-17 Budget reduced weighted deduction benefit from 200% to 150% and has further restricted the deduction to 100% April 1, 2020.
Similarly, a provision should be there to reintroduce investment allowance at 15% for manufacturing companies that invest more than `25 crore in plant and machinery, Jain said in his memorandum.

According to him, “The auto component industry contributes significantly towards employment generation and exports. To meet the union government’s vision of a $5 trillion economy by 2025, of which the manufacturing industry would be $1 trillion, 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 Union government would consider our long-standing recommendation of 18% GST on all auto components as also extend impetus to R&D and indigenous technology development.”

The Indian auto component industry contributes 2.3% to India’s national GDP and provides employment to 5 million people. The industry witnessed a growth of 14.5% posting a turnover of Rs 395,902 crore ($57.10 billion) in the FY 2018-19. While the exports showed a growth of 17.1% scaling to Rs 106,048 crore ($15.16 billion) in FY 2018-19. The aftermarket grew 9.6% to Rs 67,491 crore ($10.1 billion).

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