Rising input costs, multiple regulations on vehicle safety, and focus on emission and fuel efficiency in recent years have led to an increase in the cost of vehicles. The past three years saw features like the anti-lock braking system and dual airbags being made mandatory. The auto industry also leapfrogged to Bharat Stage 6 emission norms from the BS 4 norms in just three years. Besides, from FY23, India will be adopting a stricter form of Corporate Fuel Efficiency regulations that are expected to further push vehicle prices up.
Apart from these constant updates and changes, the auto industry has also been battling the impact of Covid-19. The Indian auto industry now faces the threat of rising cost of acquisition that is likely to dampen consumer sentiments further.
Hence, from car manufacturers to retailers to component makers, every stakeholder in the automobile ecosystem is now hoping that tomorrow Finance Minister Nirmala Sitharaman will announce provisions in the Union Budget that will reduce the cost of acquisition of vehicles.
e4m spoke to various industry leaders for a low-down on their expectations from the Budget. Top officials also shared their recommendations for the various segments.
Boosting the Economy
Owing to the three waves of COVID-19, most car manufacturers in India have witnessed a drop in sales till FY22 Q3. They are now looking up to the Budget for announcements regarding infrastructure development so that the Indian economy that is still in the recovery phase can finally witness a rebound.
“The growth in the country’s economy is directly linked to car sales. Hence, whatever measures are needed for the overall growth of the Indian economy, the same is required for the growth of the automobile industry. We hope the Union budget has the right mix of all those measures that increase GDP. If the cost of acquisition also comes down, it will lead to higher vehicle purchases,” Shashank Srivastava, Executive Director of Maruti Suzuki (Sales and Marketing) told e4m.
Confronted by the unprecedented scale of the pandemic, the government has had to make several unplanned expenditures towards healthcare, the social sector as well as on measures to mitigate the overall impact on the economy. Now, taking a balanced approach to tackle the high fiscal deficit while continuing to nurture the economy will help, said a Toyota Kirloskar spokesperson.
“We believe that through its focus on the Production Linked Incentive Scheme (PLI) for several key identified sectors, the government has sought to transform the economy by attracting huge investments in advance and future technologies, and for areas where India is at present highly dependent on imports. The automotive industry is one of the sectors that will benefit directly as well as through the PLIs for electronics and advanced chemistry cells (ACC). These measures will help create a vibrant and competitive local manufacturing ecosystem for advanced and green technologies at a global scale. The benefits will also trickle down the entire supply chain thereby providing a boost to the MSMEs,” the spokesperson said.
According to officials at Kirloskar, “PLIs also focus on providing impetus to a greener future. Besides, the government should strengthen the Faceless Assessment Scheme that will not only enhance transparency and build confidence in the system, but also promote revenue collection and the ease of doing business.”
Sources in the industry say that the Society of Indian Automobile Manufacturers has sought a reduction in import duty on auto components. SIAM also wants the government to ensure the availability of semiconductor chips, increased investment in road infrastructure and sops to push the electric vehicles segment, people in the know say.
The import duty on auto components was hiked last year as the government sought to promote “Atmanirbhar Bharat Abhiyan” to support local MSME manufacturers.
Reduction in GST
The automobile dealers’ body, Federation of Automobile Dealers Association (FADA), has urged the government to reduce GST rates on two-wheelers to 18 per cent in order to generate demand in the segment.
FADA, which represents over 15,000 automobile retailers, noted that two-wheelers were not a luxury item and hence GST rates need to come down. GST rates for two-wheelers currently is at around 28 per cent, the highest tax slab.
"FADA requests the Ministry of Finance to regulate and reduce GST rates on two-wheelers to 18 per cent and continue to move our nation to global leadership," the industry body said in its statement.
According to FADA, two-wheelers are not a thing of luxury but a necessity, especially in the rural areas where people use them for their daily working needs. Hence, the rationale of 28 per cent GST + 2 per cent cess meant for luxury products does not hold good for the two-wheeler category," it has stated.
At a time when vehicle prices are increasing after a gap of 3 to 4 months due to the rise in input costs and other factors, a reduction in the GST rate will help in countering the price hike and spur demand, the industry body has further noted.
Tax Relief for Used Cars
The ‘used car’ segment has been seeking the government's attention for quite some time especially during the pandemic, with digitization and tax relaxations being the top wants.
Ruchit Agarwal, Co-Founder & CFO, CARS24, says, “Personal mobility has witnessed a significant rise in the post-pandemic world. The demand for automobiles is directly dependent on the growth of the economy. Therefore, the upcoming Union Budget will play a critical role in defining the way forward with initiatives such as tax benefits and relaxations for the common man.”
Pointing out the specific industry needs, Agarwal says, “The scrappage policy was a positive move last year, and we welcome the government’s recent initiative to introduce BH number plates. This will increase the ease of doing business and not only will it simplify the transfer of cars between users but also from one state to another. Additionally, to boost the start-up ecosystem, we look forward to liberal tax benefits and lower interest on capital.”
FADA has also demanded a uniform GST rate of 5 per cent on the margin for all used vehicles. The government currently charges GST on used cars at the rate of 12 and 18 per cent for cars under 4,000 mm and above 4,000 mm, respectively.
The reduction in GST will help the industry to shift from the unorganized to the organized segment, thus bringing in more business under the ambit of GST and putting a brake on tax leakages, FADA has further noted.
The used car business occupies 1.4 times the size of the new car market, accounting for 5-5.5 million cars per annum with a turnover of over Rs 1.75 trillion. Authorized dealers account for only 10-15 per cent of this trade, FADA has stated.
The industry also hopes that Budget 2022 continues to pave the way for digitization of industry regulations that increases inter-state vehicle sales, shorter turn-around time for transfer of ownership and lower taxes.
According to Niraj Singh, Founder & CEO, Spinny, “A uniform GST rate of 5% on the margin for all used vehicles could be a great move and help in making this segment organized. This will eventually ramp up the demand for second-hand cars by pulling in more customers.”
Electric vehicles
The Society of Manufacturers of Electric Vehicles (SMEV) has requested the Centre to provide subsidies - on exports of affordable small cars and scooters. This segment wants to be put in the priority lending sector so that citizens are able to afford EVs at lower interest rates.
The SMEV has sought amendment in the PLI scheme that allows MSMEs in the automobile and auto components.
“Electric vehicles must be considered for priority lending by the government to accelerate their adoption, while sufficient funds must also be allocated for R&D in a public-private partnership model for the development of batteries,” the SMEV has said, adding that there must be a dedicated budget for the ‘Clean Air’ campaign.
Echoing the sentiments, Spinny’s Niraj Singh says, “Owing to the rapid increase in vehicular pollution, pushing for a shift to EVs will be the step in the right direction. And for this, the government should evaluate the option of less taxes on EVs and vehicles in general, and consider expanding the possibility of tax deductions on EV loans as well as on other vehicles.”