Budget 2020: No special measures for the ailing auto industry

Finance minister Nirmala Sitharaman’s second—and also the longest-ever—Budget had no special measures to help the ailing auto industry see a turnaround.

The industry, which contributes 7% to the GDP, has seen falling sales for more than a year. It had been hoping to see a cut in the goods and services tax (GST), clarity on a long-overdue scrappage policy, and incentives for manufacturers of electric vehicles and batteries.

“I’m not sure if, in the Budget, our approach has been industry/sector-wise. My approach in the Budget has been more to talk about areas where we need to put money and we are putting money. I have announced the proposed allocations... So our approach has been clearly to broadly look at the economy as a whole… where money has to go into the hands of people for both short-term consumption requirement and for long-term investment requirements,” she told reporters at the post-Budget press meet.

She also said that the scrappage policy is in the works. “I won’t be in a position today to announce it today in Parliament because I would wait for the concerned ministries to fine-tune everything that they have, tie up all the loose ends and then come to a stage where it can be announced by the ministry,” Sitharaman said.

The only mention in the Budget related to the auto sector, however, was made in regard to the mid-size companies in overseas markets. “Many mid-size companies are successful domestically but not in export markets. For selected sectors such as pharmaceuticals, auto components and others, we propose to extend handholding support—for technology upgradations, R&D, business strategy, etc.,” Sitharaman said.

She announced that a scheme of ₹1,000 crore will be anchored by EXIM Bank together with Small Industries Development Bank of India. “Both these institutions would contribute ₹50 crore each. This ₹100 crore would be achieved towards equity and technical assistance. Debt funding of ₹900 crore from banks would be made available,” she said.

The slowdown in the industry has been due to a host of reasons: the increasing cost of ownership, fuel price volatility, the transition to stricter Bharat Stage VI emission norms, uncertainty over electric vehicles, and rising insurance costs.

Most of the expectations of automotive manufacturers and related companies remain unaddressed. In fact, there has been an increase in the customs duty on electric vehicles. “Under Make in India initiative, well-laid-out customs duty rates were pre-announced for items like mobile phones, electric vehicles, and their components. This has ensured a gradual increase in domestic value addition capacity in India. Customs duty rates are being revised on electric vehicles and parts of mobiles as part of such carefully conceived phased manufacturing plans,” Sitharaman mentioned in her speech.

Rajeev Chaba, president and managing director, MG Motor India, called this hike a bit harsh. “We feel that the customs duty hike on EVs assembled in India from 10% to 15% is a bit harsh, as this may impact the nascent category which was beginning to expand off late,” he said.

As per the new tax reforms, 70 tax exemptions have been removed but income between ₹5 lakh and ₹7.5 lakh will be taxed at 10% (down from the current 20%), income between ₹7.5 lakh and ₹10 lakh will be taxed at 15% (down from current 20%), income between ₹10 lakh and ₹12.5 lakh will be taxed at 20% (down from current 30%), income between ₹12.5 lakh and ₹15 lakh will be taxed at 25% (down from current 30%) while income above ₹15 lakh will continue to be taxed at 30%.

The auto industry feels that these reforms could help boost the purchasing power of the people and in turn help the industry. “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 their car buying decision. Moreover, owing to the BS-VI transition, the prices of cars are set to increase soon,” Pawan Goenka, managing director, Mahindra & Mahindra, said.

The industry calls it a more or less a “balanced” Budget. “The Budget exhibits a fine balance between spending to drive growth and maintain fiscal prudence. The attempt to address the trust deficit by the institutionalisation of taxpayers’ charter would exude more business confidence and trust amongst taxpayers and is a welcome step. Attempt towards simplification of individual taxation will drive better compliance, increase disposable income for consumption and generally augur well-stimulating growth,” Naveen Soni, senior vice president (sales and services), Toyota Kirloskar Motor, said.

Sitharaman in her speech also mentions the need for cleaner air. “In large cities having population above one million, clean air is a matter of concern. The government proposes to encourage such states that are formulating and implementing plans for ensuring cleaner air in cities above one million,” she said.

Cab aggregator Ola’s think tank Ola Mobility Institute, said, “The clean air fund of ₹4,400 crore to be provided in the form of incentives to be notified by MoEFCC should consider measures to link the incentives to the electrification of vehicles and associated infrastructure such as battery-swapping and charging.”

Auto analysts feel that there were many misses in the Budget. “The two big misses from an automotive perspective were no announcements regarding GST reduction especially to offset the increase in prices due to BS VI vehicles. The industry was also expecting an announcement around the scrappage policy for not only boosting demand of new vehicles but also for ensuring the old polluting vehicles are pulled out of the transportation system resulting in cleaner air,” said Rajeev Singh, partner, Deloitte India.

Triumph Motorcycles, too, feels that the auto industry was expecting much more from the Budget. “Although the auto sector maybe was looking for more direct measures, the Budget for sure provided some remedies which should expedite revival in the medium-to-long term,” Shoeb Farooq, GM, Triumph Motorcycles, said.

The Federation of Automobile Dealers Associations (FADA) also says that the Budget lacked demand boosters. “It is an inclusive budget but lacked immediate demand boosters. It was disappointing that as part of the auto ecosystem, no direct benefits for the automobile industry were announced. Budget allocation for an attractive incentive-based scrappage policy would have been a demand booster for commercial vehicles and also a positive for cleaner environment and road safety. Even though GST is not a part of Budget, an indication of the rationalisation of GST rates for automobiles would have also brought much respite to the industry which is stumbling under extensive stress for more than a year now,” FADA president Ashish Harsharaj Kale said.

He added that “the personal income tax rates under the new regime, if [they] are net tax positive for the taxpayers, [they] will act as an immediate sentiment booster, especially for two-wheelers and entry-level passenger vehicles.