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Automotive Product Finder Magazine | Interim budget to give indirect push to auto sales
Interim budget to give indirect push to auto sales
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Except for reiterating its commitment to push for electrification of vehicles, there was no major announcement for the automotive industry in interim budget. However, increased outlay for the rural segment and raised income tax exemption limit to Rs 500,000 would lead to higher disposable income and demand for automotives. A report…
The Interim Budget has continued with the Central Government’s focus on the rural economy, urban poor and infrastructure investments. By increasing the outlay for rural infrastructure by Rs 3,500 crore to Rs 19,000 crore in support to PMGSY, demand for tractors used in rural construction is expected to rise. Similarly, higher allocation under NHAI and metro projects is expected to be positive for commercial vehicle sales.
With a series of measures announced in Interim Budget 2019 to boost the rural economy, the demand for automotives is likely to witness an upswing. According to ICRA, the commercial vehicle (CV) sector will continue to reap benefits from the Government’s commitment towards increased allocation for the rural economy and infrastructure sector, especially for the development of roads and highways. “These investments will not only support the sale of vehicles used for providing last-mile connectivity but will also be positive for tipper sales that constitute approximately 25-30 per cent of M&HCV truck sales in India. So far in the current fiscal, tipper sales have registered healthy growth,” it added.
For taxpayers, with annual taxable income (net of deduction) under Rs 5 lakh, the budget proposes a full rebate. This will leave more money in the hands of consumers, who (especially the young ones) may spend on buying vehicle. “Improvement in road connectivity is a positive for the passenger vehicle industry, especially entry-level cars and the utility vehicle segment. Full tax rebate for taxpayers with annual taxable income under Rs 5 lakh will support demand in the entry-level PV segment,” said ICRA report.
The Government’s increased outlay for the rural and agrarian segment would lead to higher disposable income and demand for the automotive sector, especially two wheelers, PVs and tractors, which together account for 70 per cent of domestic OE demand. Increased focus on road infrastructure will support demand for commercial vehicles and construction equipment. Consequently, component suppliers will also witness an increase in demand.
The interim budget reflected government's commitment towards electric vehicles (EVs). Recent revision in import duty augurs well for domestic automobile industry. ICRA stated, “Although the Government did not announce any direct incentive programme (under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme) for the adoption of EVs in the public transport segment, the recent reduction in import duty levied on auto components used for EVs and commitment towards EVs will have a favourable impact, going forward.”
However, hybrid vehicles failed to find favour with the Finance Minister and will continue to be taxed at a higher rate. In the absence of any direct benefits such as scrappage schemes for older vehicles or greater direct incentives to promote the usage of EVs, the announcements made in the Interim Budget (FY2019-2020) would be Neutral for the sector, added the ICRA report.
In line with the Government’s mission of doubling farm income by 2022, the introduction of PM-KISAN scheme for direct income support to small and marginal farmers is a key positive as this brings income certainty, especially when the crop realisations remain subdued. “This income support scheme coupled with initiatives towards higher allocation for crop insurance, rural infrastructure, MGNREGA, higher interest subventions besides various state-specific schemes announced in the recent past augur well for the farm sector. Moreover, tax exemption for small tax payers as well as increased standard deduction would result in higher disposable income and support demand for two wheelers,” said ICRA.
The industry has given a mixed reaction to the interim budget in the absence of any direct incentive.
Budget expected to spur economy’s growth: SIAM
According to Society of Indian Automobile Manufacturers (SIAM), the increase in income tax exemption upto Rs 500,000 is expected to positively impact consumer sentiment and consumption expenditure, which will give impetus to demand for two-wheelers and small passenger vehicles, while overall improvement in the road infrastructure will ease movement of people and goods on the road and have multiplier effect on the economy.
SIAM expressed happiness for emphasising on electric mobility in the 2030 Vision of Government of India that aims at increasing energy security, reducing oil import dependence and reduce vehicular pollution. SIAM said that it would work with Government in creating an ecosystem that would enable us to achieve the target of becoming the world leader in electric mobility.
Ministry of Finance has recently notified definition and customs duties for Completely Built Unit (CBU), Semi-knocked down unit (SKDs) and Completely knocked down units (CKDs) of all categories of electric vehicles. The move has been welcomed by SIAM, however the customs duty for lithium ion battery has been increased from Nil to 5 per cent for electric vehicle manufacturing. Since cell manufacturing is at very nascent stage at present in India, the current practice of importing cells is expected to continue and hence the change will only lead to increase in cost of manufacturing electric vehicles battery packs, which is expected to be dampener in generating demand for electric vehicles. SIAM requests a review of increase in customs duty on cells.
Toyota applauds Govt’s focus on EV: Shekar Viswanathan
According to Shekar Viswanathan, Vice Chairman & Whole-time Director, Toyota Kirloskar Motor, the overall budget perspectives are positive covering wide spectrum of areas as health, skill, infrastructure, agriculture - as a big boost to the economy. The resource allocation across the budget has been thoughtful. The fiscal deficit at 3.4 per cent of GDP reflects better economic stability with the impact on inflation outlook being relatively muted. He added, “As we see, the continuing path of fiscal incentives would be growth positive, accelerating the nation’s development. Further, the thrust on overall rural development will certainly accelerate the buying sentiments of the consumers and also the increased tax exemptions will enhance the disposable income of the people, thus contributing to the upliftment of the society with improved living conditions.”
The focus to strengthen the infrastructure (road, rail & air) will certainly facilitate industrial growth and promote ‘Make in India’ paving way for better mobility & accelerate the ease of doing business. Shekar Viswanathan said, “We applaud the Government of India’s focus on EV drive towards reducing fuel import. Toyota has been a pioneer in electrified space offering alternate mobility solutions (HEVs, EVs, FCVs, PHEVs) globally. We would further continue our concerted efforts in this direction to boost sustainable mobility to enhance ever-better & comfortable living of the society. The vehicle emission based tax regime would boost this EV vision, towards achieving a cleaner and greener environment. We hope that the tax revenues will continue to grow, enabling the implementation of the budget announcements. We now look forward to the full-fledged budget that would be presented during May-Jun this year.”
Define a technology agnostic road map for EVs: ACMA
Automotive Component Manufacturers Association of India (ACMA) has welcomed the interim budget for announcing measures to boost the economy and making it inclusive. The industry body expressed satisfaction on the focus on development of rural economy, middle class, infrastructure, health and education, ease of doing business, attracting investments and encouraging digitization.
Ram Venkataramani, President, ACMA, said, “The budget unveiled by Finance Minister is indeed inclusive, growth oriented and technology focused. It lays a strong foundation for India’s economic growth for the next decade. The budget has given a much-needed focus to growth and development of the rural economy by extending necessary incentives to it. Further, increasing the zero tax income limit to Rs 500,000 will be a shot in the arm for the middle-class thus boosting market sentiments. These measures will lead to improved sales of automotive products, especially two-wheelers, farm equipment and entry level passenger vehicles which in turn, will fuel growth of the domestic auto component industry. With an eye on leapfrogging the country on technology front, the setting up of a National Centre on Artificial Intelligence is truly welcome. This will facilitate development of newer skillsets in the wake of the disruptive technological trends being witnessed by the automotive industry.”
The government has also taken steps for India to lead the world in transport revolution on the back of electric vehicles. Venkataramani added, “We urge the Government to define a technology agnostic road map for xEVs (hybrid and electric vehicle), with a well-outlined plan for component manufacturing to support the same. It needs to be ensured that import tariff on components for xEVs is progressively enhanced to 15 per cent to realise the vision of ‘Make in India’. That apart, enabling research in component development for xEVs through a technology development fund is also the need of the hour.”
Lowered duties to boost components industry
Nishant Arya, Executive Director, JBM Group has termed the interim budget as very progressive. The government has taken some positive steps like the reduction in import duty from 15-30 per cent to 10-15 per cent. Arya said, “While, the lowered duties will promote local assembly of components, some kind of incentivisation was an absolute necessity for OEMs to invest in facilities that promote electric vehicles. I believe most of us were looking forward to the announcement of FAME II because it will give us a clear roadmap. We were hoping that the deduction of expenditure on R&D from 150 per cent could have been taken to at least 200 per cent reduction to start with. The next three years are crucial in terms of investments and the industry will be in a transition phase due to shift to BS VI and induction of EVs in the Indian ecosystem.”
According to Vinodkumar Ramachandran, Head, Industrial Manufacturing and Automotive, KPMG India, with focus on rural India, this year’s budget will help boost the demand for tractors, farm equipment and light commercial vehicles. “Also, government allocation of Rs 19,000 crores for development of rural roads, will bring a positive boost in construction equipment industry, thereby leading to a demand in the two wheeler and small car market,” he added.
Dr Raghupati Singhania, CMD, JK Tyre & Industries, observed that there was nothing specific to boost economic activity (in the interim budget) which is the need of the hour. “As expected this is the election year. Roll-out of series of sops for the farmers and middle class, assured farm incomes and direct transfer for small farmers are definitely going to bring some relief but there is much more needed to alleviate farm distress in our country. Tax-breaks and pension schemes for workers in the unorganised sector are good measures,” he added.
EV the focus area
The EV community is happy that electric vehicles got mentioned as one of 10 dimensions of focus till 2030. Rajiv Menon, Managing Director, Black & Veatch India, said, “Finance Minister Piyush Goyal emphasised on the importance of making India a pollution free nation, stating that a green and clean India is the third dimension of the government’s vision. India will drive on electric vehicles with renewables becoming a major source of energy supply. Global infrastructure/power experts like us applaud the importance laid on renewable energy and energy storage devices through electric vehicles. This vision will reduce import-dependence and ensure energy security for the people of our country.”
Maxson Lewis, Managing Director, Magenta Power, added, “While no specific tax structures or rebates were mentioned in the budget, this was quite expected since a day ahead of the budget the government via the Central Board of Indirect Taxes and Customs (CBIC) has carved out a separate category for parts and components of electric vehicle for which customs duty has been lowered to 10-15 per cent, with a special push for local battery manufacturing to counter China’s hold on the global battery manufacturing monopoly. Until now, vehicle parts and components imported for assembly in India attracted import duty of 15 to 30 per cent.”
The budget is consistent on its EV push as it wants to move away from fossil fuels as quickly as possible to reduce India’s dependence on crude. Lewis added, “Overall, the 2019 Budget has reiterated its goal of passenger vehicle electrification by 2030.What would have made a big positive impact however would have been a simple announcement of removal of tolls for electric vehicles across India. This would have certainly given an emotive push for adoption of electric vehicles in India.”
Hybrid And Electric Vehicles
Automotive Component Manufacturers Association Of India
Boost Components Industry
Black And Veatch India
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