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An Electric Vehicle Push From The FM

It was expected that the electric vehicle industry would get a new set of norms in the new Budget and a subsidy on battery and lithium imports

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The Indian automotive industry is growing. In fact for the year 2017-2018, the auto industry in India outpaced Germany to become the fourth leading automotive market in the world. Overall vehicle sales grew by 9.2 per cent with total sales of 4.02 million units in 2018. These figures include passenger vehicles as well as commercial vehicles for the period April 2017 - March 2018. About 81 per cent of the total production volume in FY18 was shared by two-wheelers, followed by passenger vehicles with 13 per cent and three-wheelers with a share of three per cent.

The Union Budget 2018 granted little in terms of favour to luxury vehicle makers. When GST rates were hiked to 15 per cent on Complete Knocked Down (CKD) kits, it directly affected both luxury vehicle makers and end consumers. To maintain their bottomline margins this year, the Society of Indian Automobile Manufacturers (SIAM) had opened talks with government officials to pull GST tax rates back to the 10 per cent slab.  

The adoption of electric mobility in India has been rather slow due to the high cost of the electric vehicles (EVs) and the challenges associated with their daily use. This high cost is a direct result of the costs involved in importing technology and components for these vehicles.

The need of the hour is for India to develop its own indigenous technologies which are better suited for the Indian ecosystem. It was expected that the Electric Vehicle (EV) industry would get a new set of norms in the new Budget and a subsidy on battery and lithium imports that would support the electric vehicle market.

The new Budget was also expected to introduce incentives for a sustained growth of upcoming EV companies. The Indian Automotive Industry is making a major shift to the new BS-VI (Bharat Stage – VI) emission norms in the coming year. As a result, the Faster Adoption of Manufacturing of Hybrid and Electric Vehicles (FAME) project was expected to get a push forward.

The FAME project was also expected to have a provision for additional funding for setting up a proper electric charging infrastructure for electric vehicles. Similarly, the Automotive Tyre Manufacturers Association (ATMA) had anticipated that import duty on natural rubber would go down to provide for the growing demand for tyres in the automobile industry.

Impact on automotive industry
l Individual tax payers with an annual income of Rs 5 lakh will get a full tax rebate. There is no increase in the basic exemption limit of  Rs 2.50 lakh to Rs 5 lakh but rebate under Section 87A has been increased from Rs 2,500 to Rs 12,500 and would cover tax payers with taxable income of up to Rs 5 lakh.

l Businesses with annual turnover of less than Rs 5 crore, comprising over 90 per cent of GST payers, will be allowed to file quarterly returns.

lRs 6,000 per annum has to be paid to every farmer with up to two hectares of land, effective September 2018.

Implications of Union Budget 2019
lAs income up to Rs 5 lakh gets exempted from tax, consumer spending is expected to receive a boost. Even though this rebate will benefit only those with taxable income of Rs 5 lakh or less, this rebate can prove positive for FMCG and auto stocks as it will put more money in the hands of middle-income families. The benefit will indirectly be received by the auto companies.

lThe quarterly GST filing up to Rs 5 crore is expected to benefit small auto ancillary companies.

lThe structural income support providing direct benefit transfer to small and marginal farmers is in the right direction. Around 72 per cent of farmers are in this category and are likely to increase to 90 per cent by 2025.

The farm income support of Rs 6,000 per annum is positive for two-wheeler and tractor industries, providing a push in sales. As rural income increases, it will add more purchasing power in the hands of the poor, push consumption and therefore, indirectly benefit auto companies.

Reality Vs. expectations
Even though no tax structures or rebate slabs were discussed during the Budget, the automobile industry gladly welcomed the Electric Vehicle Push from Finance Minister Piyush Goyal. As the first step in making India drive on electric vehicles, the government has lowered customs duty on import of parts and components (10 per cent  15 per cent) to promote domestic assembling of electric vehicles.

The government is also focusing on the use of clean energy in the transportation sector and is expected to soon announce a concrete plan of action with time-bound implementation. The proposed electric revolution by the government will provide the much-needed impetus to the auto industry.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


Tags assigned to this article:
Union budget 2019 economy piyush goyal

Sumit Sawhney

The author is Country CEO & MD, Renault India Operations

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