While most economic sectors in India were negatively impacted due to the Covid-19 pandemic, the slowdown in the Indian automotive sector predates Covid-19. It started sometime in 2018-19, when the overall economy slowed down (analysts FE talked to earlier said it was, in part, due to the aftereffects of the note ban, implementation of GST and the banking crisis).
Since then, in every Union Budget, the automotive sector has been expecting a more rationalised tax structure, among other direct and indirect support measures. Over the years, it has been offered some support.
This year, Deepak Jain and Sushil Pasricha—both are partners at Bain & Company—shared with FE that the expectations of the manufacturing sector (of which automotive is a big part) are multi-layered, such as:
Rationalisation and simplification of taxation: The reduction of GST in certain sectors and reducing the number of slabs in GST would not only increase tax compliance but also provide the necessary relief that would boost consumer sentiments and keep the demand high;
Low-cost, long-term loan to reduce debt burden: In the MSME sector (which employs 40% of country’s workforce and contributes to 30% GDP, and is also a major supplier to the automotive sector), the government should provide low-cost, long-term loans to infuse working capital and ease out the effects of pandemic;
Higher investment in skilling the workforce: There needs to be higher investment in skilling the workforce, as automation is replacing older jobs and is creating newer ones. The workforce should be upskilled for the next phase of industrialisation, i.e. Industry 4.0, or the Fourth Industrial Revolution;
Make factories energy-efficient: The manufacturing sector is considered one of the significant contributors to environmental pollution; the government should take a two-pronged approach to reduce carbon footprints of factories—one by incentivising the usage of renewable energy such as solar, and two by setting stricter norms of energy efficiency for factories.
“Within manufacturing, we believe that certain key sectors like automotive are going to provide a thrust to India’s manufacturing GDP in the coming years,” Jain and Pasricha said.
Long-term vision for electric vehicles: EVs are the next big thing in the automotive sector, which will be critical towards meeting sustainability goals. The adoption of EVs depends on two factors—affordability and infrastructure. “Therefore, the government should apply a flat GST rate of 5% for all EV components, rolling out more incentives and polices to reduce manufacturing costs, ultimately leading to reduction of overall price of EVs,” Jain and Pasricha added.
Upward revision of Remission of Duties and Taxes on Export Products (RoDTEP) rates: The government should consider raising the RoDTEP rates that were implemented in January 2021 as a successor to the Merchandise Exports from India Scheme (MEIS). The rates notified at 1% or lower are inadequate to cover the incidence of non-refunded taxes and duties borne on export products. This is deterring the competitiveness of the Indian automotive components industry.