The Union Budget to be presented on February 1, 2017 has the entire nation on tenterhooks. Post demonetisation, growth appears to have slowed down, and automobiles, like most other industries has seen a negative impact. A decline of almost 19% in vehicular sales was seen in December, a sixteen year low. The restrictions on diesel vehicles of more than 2000cc in the NCR market and anti-diesel sentiment have also impacted automobile sales. In this scenario, the upcoming budget is extremely crucial for the sector.

The automotive sector is one of the main drivers of economy, contributing  around 7% to GDP, with nearly 20 million jobs added in the last decade alone. Industry experts have their hopes pinned on a budget that will prove push growth from a sluggish pace to gather momentum and boost consumer spending.

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  • Direct tax reforms and increased exemption limits will lead to more disposable income, translating into an increased demand for vehicles.
  • With GST expected to roll out soon, a simpler tax system with fewer slabs, long overdue in this sector, is anticipated. Clarifications on the GST and its applicability to different sectors, including pre-owned cars, will prove beneficial.
  • Incentives under Faster Adoption and Manufacturing Hybrid and Electric vehicles (FAME) and impetus for vehicles using alternate energy are almost a certainty in budget 2017.
  • Introduction of various safety features and emission norms mandated internationally are hindered by the current definition of small cars, which restricts length of vehicle to 4 m and engine to 1200 cc (petrol)/1500 cc (diesel). This, in turn, impacts sales and export of such vehicles. Enlarging the scope of ‘smaller cars’ to encompass a wider range to meet global standards is a long awaited stimulus.
  • Allocation for implementation of the Automotive Mission Plan (AMP).
  • Lower duty/cess for cars and two wheelers, making them more affordable.
  • Increased spending on R&D and infrastructure for automotive industry. Incentives to transform the auto industry into a true “Make In India”, with every component being manufactured indigenously.
  • The auto ancillary industry is mostly in the SME segment and will look forward to incentives and easier funding in the budget.
  • Increased allocation for roads and highways, development of new ports/airports, and measures to revitalise real estate and construction sector are other expectations which will have a positive impact on the automotive sector. Incentives for agriculture sector will translate into increased demand for tractors.

 

The automotive industry encompasses all types of vehicles and ancillaries, not merely cars and bikes. So budgetary focus on infrastructure, construction sectors, public transportation is equally vital for auto industry. The budget impact on  items such as rubber, steel, plastics,  glass, air-conditioners used in the automotive industry will have a cascading effect.

 

While long term benefits of demonetisation will start kicking in and GST will become a reality from July 2017, a lot is expected from the 2017-18 Budget towards a comprehensive, integrated roadmap for the auto sector’s sustained growth and increased exports.

 

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