Budget 2022: Auto industry seeks breather from decade-low sales

The domestic automotive industry was touted to post a recovery after the industry faced a slowdown in 2019, and frequent lockdowns and restrictions once the country was subsumed by the pandemic in 2020. However, the unforgiving second-wave in the first half of 2021 threw a wrench in that convalescing sentiment. Once the number of infections started to wane, demand across certain segments in the industry started to pick up, but its prospects looked bleak because of the rising cost of ownership (resulting from the rising cost of raw materials), and a deficit in supply fuelled by the semiconductor shortage. “These multiple headwinds significantly impacted the prospects of the industry, evidenced by decadal low levels of sales in the festive season of FY2022,” reads a note from ICRA.

To mitigate the effects of the double whammy of non-specific and industry-specific factors, the government ought to introduce a slew of end-to-end measures — from incentivising production to consumption. “ICRA expects the government to focus on consumption revival through employment generation, investment in infrastructure development and rural economy in the upcoming budget,” the note adds.

The automotive industry is one of the beneficiary sectors identified for the government’s Production Linked Incentive (PLI) schemes. Carmakers are hopeful that PLI will boost the sector — bring in investments in advance and future technologies, and for areas in manufacturing where India is import-dependent. “This initiative promises not only to make us self-reliant but also globally competitive. As the huge government allocation will be spread over next five years (starting from FY2023), these schemes will give the desired boost without the sudden immediate burden on the exchequer,” tells a spokesperson for Toyota Kirloskar Motor. The industry is one of the sectors that will benefit directly as well as through the PLIs for electronics and advanced chemistry cells (ACC).

Jatin Ahuja, the founder and MD of Big Boy Toyz, a pre-owned luxury car dealership, wrote in a publication that while the PLI-linked schemes will enable the country to reduce its dependency on imports for advanced components required in producing vehicles and make India self-sufficient, the push for local manufacturing will also mean that the import duty on the components will eventually increase. Hence, the industry expects the government to cap the duty at 18%. “The industry seeks the rationalising of the rates at 18%, which shall act as a breather to this long pending issue and shall set a positive upward growth tick within the industry.”

The Federation of Automobile Dealers Association (FADA), the apex body of automobile dealers in the country, has expressed concerns that the current criteria for manufacturers for the PLI-related incentives will not create a level-playing field. Currently, companies with low turnover and revenues are not eligible for the PLI schemes, as they do not fulfil the criteria.

A more inclusive approach towards PLI is extremely crucial for India’s burgeoning yet nascent EV ecosystem in India. “A small budget could be allocated for a green point card for all EV owners, like the types of the mileage card of airline companies, which can be used at various establishments and occasions to access fast track services or acquire points for the rewards," the Society of Manufacturers of Electric Vehicles (SMEV), FADA’s EV contemporary tells. Toyota Kirloskar Motor concurs. “PLIs also focus on providing impetus to a greener future, these will further help to achieve government’s objectives of rapid carbon reduction.”

FADA also expects that the government should introduce additional measures to continue incentivising consumers to take the plunge and switch to electric. Last year, the government announced the extension of the Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) scheme — which facilitates subsidies and tax rebates for EVs, espousing faster adoption — till March 31, 2024. The industry expects that this scheme should further extend so that EVs continue to remain affordable.

Ahuja, however, had remarked that it is unlikely that the government will provide a tax relief to OEMs, as it requires revenue to cover its deficit, which was increased further by the pandemic. Although the government slashed the GST rate for EVs to 5%, critical EV components required to manufacture it are still taxed between 18%-28%.

Despite the unprecedented challenges the automotive industry had to face, Deloitte maintains a positive outlook. “The automotive sector is also bouncing back over the last two quarters, and India is expected to be the third largest automotive market by 2026. The sector will be integrating technologies in the future, with electrified, autonomous, shared, and connected cars growing significantly,” Deloitte’s dossier on Budget 2022 reads.