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Expectations Of The Indian Automotive Industry From Budget 2020

This budget will set the tone for the revival of the automotive industry in the country.

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The Union Budget 2020 is one of the most anticipated budgets in recent times, particularly by the automotive industry. This budget will set the tone for the revival of the automotive industry in the country.

The Indian automotive industry saw its worst decline sales in two decades, as per a report by Society of Indian Automobile Manufacturers (SIAM). 

We believe that this is a temporary phase. The automotive industry, across the globe, is in a phase of transition. There is exciting work happening regarding new technologies and future mobility. 

India has also been focusing on the implementation of safety norms for vehicles. Mandatory anti-lock braking systems (ABS) in 2-wheelers of 125cc and above, airbags in cars and other measures were introduced in the last couple of years.

From 01 April 2020, India will be shifting to BS-VI vehicles, bringing the country on par with its global counterparts in terms of emission norms. While the industry has been preparing for this in the past couple of years, there are also concerns about rising vehicle prices impacting sales.

Vehicles equipped with new technologies are bound to be more expensive than what is currently available in the market. But it is also imperative that we adopt new technologies that can make our roads safer and cleaner. 

The government can implement new policies that will help boost automotive sales. To realise the full potential of BS-VI implementation with reduced emissions, the government should introduce scrappage policy by offering a one-time incentive in the form of rebate in taxes for replacing vehicles which are greater than 15 years and facilitate taking them off the roads. Tightening and scrappage norms for vehicles can support demand creation. 

Another factor that could also help is extending the depreciation rate for passenger vehicles and 2-wheelers to 25 per cent permanently.

In a sluggish market, one of the biggest concerns about future sales is the rising ownership cost of the vehicle. The prices of vehicles saw an increase after a rulemaking long-term insurance mandatory for all vehicles was implemented in September 2018.  In late 2019, some states like Punjab, Kerala, Bihar and Jammu & Kashmir implemented an increased road tax. 

Road tax and registration charges vary from 3 to 18 per cent, depending on the state and the category of vehicle. Introduction of a standardized road tax and registration charges across states could also help the automotive industry. 

Electric Vehicles

Electric vehicles are the future of mobility. It is imperative for the world to move to cleaner, more sustainable forms of transport. Electric vehicles also herald a change in the way we perceive vehicles and its ownership.

This shift, too, comes with its own set of challenges. Considerable money is being invested in R&D towards new battery technologies, safety systems and vehicles. While India does not have a specific deadline to complete the transition, the move is definitely in this direction. 

The Government of India introduces several measures in 2019 to incentivise the manufacturing and purchase of electric vehicles. Tax rebates, a reduction in GST for electric vehicles and other incentives were offered for further adoption of EVs.

State governments have also begun work on the infrastructure required to support this transition to electric vehicles. 

The upcoming budget could have further incentives that boosts the move to electric vehicles, not just for customers but for OEMs and component manufacturers as well. 

One of the biggest costs of an electric vehicle is the battery. While batteries imported currently, plans are underway to build lithium-ion factories in India. In 2019, a tax incentive scheme was announced that would provide incentives to manufacturers of lithium-ion batteries and solar photovoltaic cells. 

However, India does not produce Lithium, a critical component for battery systems. The Indian government needs to support and provide an incentive to research and develop alternate fuel systems, which will help India in the long run.

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.

Prashanth Doreswamy

Prashanth Doreswamy is Country Head, Continental Corporation, India and Managing Director of Continental Automotive Components (India) Private Ltd. Mr Doreswamy has joined Continental in 2017 and has over 25 years of automotive and manufacturing industry experience. Doreswamy holds a Bachelor’s degree in Mechanical Engineering and Masters in Manufacturing Engineering and Technology from Bangalore University, Masters Diploma in Business Administration from Symbiosis University.

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