Budget 2020: Disappointing budget for auto sector as expectations remain unmet!

Budget 2020-21: The Budget 2020 turned out to be a disappointing one for the auto industry as most of the expectations of the automotive manufacturers and related companies remain unmet.

Budget 2020 India expectations
Budget 2020 India: The auto industry was quite hopeful that the GST reduction will take place in the budget.

Union Budget 2020: The first Budget of the decade has been announced and while the automobile industry – especially electric vehicle manufacturers had several expectations relating to reduction in GST or customs duty on lithium-ion cells, not much made a part of the 2020 Budget announcement for the auto sector. One major highlight of the 2020 Budget is the changes made to the Income Tax slab which will now put more money in the hands of the consumer and the largest benefit seems to go to middle-class families. This would mean that since buying capacity would improve, we can expect to see an improvement in car sales which have been witnessing a major slump. However, the Budget 2020 turned out to be a disappointing one for the auto industry as most of the expectations of the automotive manufacturers and related companies remain unmet.

The auto industry was quite hopeful that the GST reduction will take place in the budget in order to slightly compensate for the price hike bound to happen during BS6 transition. Talking of electric vehicles, currently, Li-ion batteries constitute almost 45% cost in EVs and hence, one can say that the cost of an EV is directly proportional to the cost of the batteries fitted in it. Manufacturers like ION Energy had expected the custom duty of 5 percent to abolish on lithium-ion battery cells. The firm said that it is quite imperative to incentivize the local manufacturing of lithium-ion battery cells that can eventually result in the local manufacturing and assembling of battery packs, thereby reducing the import costs.

On the other hand, MG Motor India was quite hopeful about the Government providing the right policy, incentives along with charging infrastructure in order to bring more electric vehicles on the road. The brand also expected the Government to provide incentives to stakeholders for the sourcing of critical raw materials for EV battery manufacturing in India in order to create a strong EV-centric ecosystem.

After the budget announcement, the Finance Minister – Nirmala Sitharaman responded to key announcements being missing from the 2020 Budget for the auto sector saying that her approach towards it was never sector or area-specific. While the auto sector was largely ignored in the Budget 2020, there has been positive response from some players in the automotive industry, welcoming the Government’s support in the areas of technology upgradation and R&D.

Here is how the automotive industry reacted to the Union Budget 2020:

Pawan Goenka, Managing Director, Mahindra & Mahindra, in his response to 2020 Budget announcements said that the reduction in income tax will definitely put more spending power in the hands of the middle-class consumer, however, this will not much affect on their car buying decision. Moreover, owing to the BS-VI transition, the prices of the cars are set to increase soon, he added.

Sunny Kataria, VP Auto, OLX said, “The focus on the rural economy will be an integral factor for the auto industry as more income in the rural areas will translate to a spurt in demand for two-wheelers, Agri related auto products like tractors, cars such as entry-level cars and utility vehicles. I was glad that the government addressed the liquidity crisis of the NBFC’s which would mean more inflow of capital for the auto segment. The government allocating over 1.7 lakh cr for infrastructural development is a positive step towards ensuring more connectivity between key industrial corridors which should augur well for the automobile industry.”

Rajeev Singh, Partner, Deloitte India on the Union Budget 2020 said, “The two big misses from Automotive perspective were no announcements regarding GST reduction especially to offset the increase in prices due to BSVI vehicles. The industry was also expecting announcement around the scrappage policy for not only boosting demand of new vehicles but also ensure the old polluting vehicles are pulled out of transportation system resulting in cleaner air.”

Sudhir Sharma, VP, Finance & Corporate Development, GoMechanic said, “The budget did not specifically talk much on the automobile sector which is going through its slowest phase in recent decades. We will continue to work with Industry bodies to bring the velocity back to the sector which is struggling for traction during this slippery phase.”

P. Srinivasavaradhan, President, TVS Srichakra Ltd said, “We welcome the steps on revisions in personal income tax slabs under the new tax scheme, with the changed direct tax structure some surplus income will be available which can drive consumption. These are key to boost manufacturing and revive consumer sentiments. Major fund allocation for infrastructure, warehousing and logistics through rail, land and air will allow manufacturers to strengthen the business footprint domestically and are in line with international best practices. Will make India more competitive globally in the years to come. Consumers who had deferred their purchases now hold the key to aid growth in the automobile sector as well as the auto components sector. The economy can look forward to be buoyant and we are glad that the government in this budget has introduced steps in different areas to reduce the stress on the manufacturers as well as the customers. Government’s step to extend support in the areas of technology upgradation, R&D will boost the auto component sector.”

As one can see, most of the expectations from the Indian auto industry remain unmet and there were no exciting announcements or relief for the auto sector. While the fact that the income tax reduction and spending on infrastructure are positive and a step in the right direction and will help the sector, we believe that it won’t result in boosting sales or reducing costs immediately or in the short term.

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