Budget 2019 focuses on long-term structural changes for the automotive industry

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Updated: July 16, 2019 11:34:00 AM

Budget 2019 India: The budget signaled the Government’s commitment to several long-term structural changes to make India a USD 5 trillion economy.

Budget 2019, auto budget, budget 2019 date, automotive industry, budget 2019 PDF, Nirmala Sitharaman, budget 2019 highlights, budget 2019 , budget highlights 2019 indiaBudget 2019-20: Liquidity concerns have impacted the consumer demand and resulted in working capital issues in the automotive industry.

Taking India to a $5 trillion economy

Union Budget 2019 India: The budget signaled the Government’s commitment to several long-term structural changes to make India a USD 5 trillion economy. There were clear areas of focus like rural and farm sector, power, infrastructure, boosting connectivity, recapitalisation of the banks and improving quality of credit in the banking system.

The Electric vehicle push

Through budget, the Government of India has clearly demonstrated its intent to push forward Electric vehicle adoption. It also hopes to enable India to emerge as a hub for manufacturing of electric vehicles and batteries; generating employment and growth opportunities. The Government has already launched Faster Adoption and Manufacturing of Electric Vehicles in India (FAME India) scheme. Phase-II of FAME Scheme, following approval of the Cabinet with an outlay of INR 10,000 crore for a period of three years, has already commenced from 1st April 2019.

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The key budget measures to support Electric vehicles are summarized below:

a)Proposal to the GST council to lower GST rate on electric vehicles from 12% to 5%.

b) Proposed new section 80EEB of the Income-tax Act to provide for a deduction to the individuals up to Rs. 150,000 in respect of interest on loan taken for purchase of an electric vehicle from any financial institution subject to the conditions specified therein. The amendment will take effect from 1st April 2020.

To further incentivize e-mobility, customs duty is being exempted on certain parts of electric vehicles. While these measures will certainly activate the Electric vehicles demand achieving sustained growth of electric vehicles will require a clear and well calibrated policy to develop the EV ecosystem.

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Supporting Make in India

The budget increased the customs duty rate on some of the automobile parts and components to boost the Make in India initiative and provide level playing field to the domestic industry. Import duty increase for selected automotive components is intended to support manufacturing in India.

Budget 2019 stores plenty of positives for automobile industry

Rural and agricultural sector push

The Finance Minister has announced an investment of INR 82,500 crore in next five years to upgrade 125,000 km of rural roads in the country. While this will strengthen rural connectivity, it will also lead to demand for commercial vehicles in the medium term.

With the Government re-affirming its commitment to double farmer’s income, it will have positive impact on the Tractor and Two-wheeler segment.

Liquidity improvement measures

Liquidity concerns have impacted the consumer demand and resulted in working capital issues in the automotive industry. In order to improve liquidity and spur credit growth, it is proposed to allocate Rs. 70,000 crore towards recapitalizing public sector banks. Also, one time 6-month partial credit guarantee for financially sound NBFC on purchase of high-rated pooled assets amounting of Rs. 1 lakh crore has been announced.

Corporate Tax reduction

Lower corporate income tax of 25% for companies up to INR 400 in turnover will benefit largely the automotive component suppliers and dealers. This is a positive step as the industry is facing challenges on demand and cost front.

Unrealized industry expectations

The budget has not considered some of the expectations of the automotive industry such as R&D incentive, reduction in GST rate on automobiles from current 28% to 18% and direct measures to improve liquidity. In addition, the increase in excise duty and infrastructure cess on diesel and petrol by INR 1 per litre each will increase the cost of ownership of vehicles.

Conclusion

The Indian automotive industry, reeling under the pressure of demand slowdown, was expecting some short-term measures for demand activation. However the Government has chosen to instead focus on structural changes that will benefit the automotive industry in the long-term.

(The author is Partner & Leader – Automotive, PwC India)

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