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Impact Of Union Budget 2019 On The Indian Automotive Industry

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 the luxury vehicle makers as well as the end consumers

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The Indian Automotive Industry is growing. Infact for the year 2017-2018, the auto industry in India out-paced 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 the year of 2018. These figures include passenger vehicles as well as commercial vehicles for the period of 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 a share of 13 per cent and 3 per cent by three-wheelers.

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 the luxury vehicle makers as well as the end consumers. In order to maintain their bottomline margins this year, the Society of Indian Automobile Manufacturers (SIAM) had opened talks with the government officials to pull the 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 EV vehicles and the challenges associated with their daily use. This high cost is a direct result of the costs involved in the import of technology and the 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 to get a new set of norms in the new budget announcement and a subsidy on the battery and lithium imports that would support the electric vehicle market. The new budget was also expected to introduce incentives for 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 following year. As a result, Faster Adoption of Manufacturing of Hybrid and Electric Vehicles (FAME) project was expected to get a push forward along with a provision for additional funding for setting up a proper electric charging infrastructure for the same. Similarly, the Automotive Tyre Manufacturers Association (ATMA) had anticipated the import duty of natural rubber to go down in order to provide for the growing demand for tyres in the automobile industry. 

Highlights of the Union Budget 2019 which impact the Indian Automotive Industry 

• Individual taxpayers with an annual income of Rs.5 lakh will get 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 taxpayers having taxable income up to Rs.5 lakh.

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

• Rs.6000 per annum has to be paid to every farmer having up to 2 hectare land, applicable from September 2018. 

Implications of Union Budget 2019 on the Indian Automotive Industry

• As the income up to Rs.5 lakh gets exempted from paying tax, the consumer spending is expected to receive a boost. Though this rebate will benefit only those people having taxable income of Rs.5 lakh or less, this rebate can prove positive for FMCG and auto stocks as it will put more money into the hands of the middle-income families. The benefit will indirectly be received by the auto companies.

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

• The structural income support providing direct benefit transfer to small and marginal farmers is in the right direction. Around 72% of farmers are in this category and are likely to increase to 90% by 2025. The farm income support of Rs.6000 per annum is positive for two-wheeler and tractor industries providing a push in the 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

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 on Tuesday, has lowered customs duty on import of parts and components (10 – 15 per cent) to promote domestic assembling of electric vehicles. The government is also focussing 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 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.

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Sumit Sawhney

The author is Country CEO & MD, Renault India Operations

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