Budget 2019 India: How can the upcoming Budget help ensure sustainable growth for the Indian automotive industry.
Budget 2019: Ahead of the first full Budget 2019 presentation in the second term of the Narendra Modi government, few of the expectations that the ailing auto sector is looking forward to are as follows:
Electric and hybrid vehicles: The government’s commitment towards electric vehicles (EVs) is a positive sign for the industry, and the revision in import duty (announced earlier this year, in January 2019) to support the local assembly of EVs augurs well for the industry. The recent draft proposal (in June 2019) to exempt battery-operated vehicles from payment of fees for the purpose of issue or renewal of registration certificate and assignment of new registration mark is a welcome move. However, hybrid vehicles failed to find favour with the finance ministry and will continue to be taxed at a higher rate. While EVs are inevitable in the long term, the transition to EVs in 10 years’ time could be through hybrid vehicles. Hence, any incentives (localisation/R&D) for hybrid vehicles on par with EVs are expected to be beneficial for the auto industry.
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Vehicle scrappage scheme: The government could consider exploring options to incentivise replacement of all vehicles that were registered before the year 2000 when the Bharat Stage 1 emission norms were introduced. The replacement of these vehicles is expected to be beneficial for the society as it will reduce emissions, including carbon emissions, lead to fuel savings, reduce accidents, reduce health cost, etc.
Consider GST rate cut to boost demand: The government, in its Interim Budget earlier this year, had increased the outlay for the rural sector with a special thrust on rural income. Improvement in road connectivity was considered to be a positive move for the passenger vehicle (PV) industry, especially entry-level cars and the utility vehicle segment. Full tax rebate for taxpayers with annual taxable income under Rs 5 lakh was considered to be an indirect incentive for customers in the entry-level PV segment. However, the sector is passing through one of the longest sales slowdowns. Reduction of GST on all vehicles to 18% from the current rate of 28% will reduce vehicle prices, which is expected to help in spurring demand that has been sluggish for the past 11 months.
Hopes are thus high on upcoming full Budget to endorse a sustainable growth environment for the Indian automotive industry.
(The author is partner, Deloitte India. Views are personal)