Picture caption: Union Minister for Finance, Corporate Affairs and Information &
Broadcasting, Arun Jaitley departs from North Block to Parliament House
along with Minister of State for Finance, Jayant Sinha to present the
General Budget 2016-17, in New Delhi on February 29, 2016. Picture courtesy: PIB
As has always been happening
in the past, the Indian automotive industry has been left with no other choice,
but to grin and bear it and pretend everything is hunky- dory. An additional 1
per cent tax will now be collected at source on purchase of cars exceeding
value of Rs 10 lakh. There will also be an infrastructure cess of 1pc on small
petrol, LPG, CNG cars, a 2.5pc on small diesel cars of less than 1500 cc and
4pc cess on other higher engine capacity vehicles and SUVs. All this would be
levied with immediate effect. All those now going out to buy passenger vehicles
will have to fork out a bit more for their dream machines.
Companies like Toyota,
Mercedes and M&M have already been dealt with a body blow when a few months
back the Supreme Court banned sale of diesel vehicles above 2000cc in Delhi
National Capital Region. But the Indian
auto industry is not looking at this; rather it is positive on some of the Union
Budget proposals that talk of macro-economic developments.
Vinod Dasari, President, Society of Indian Autombile Manufacturers
(SIAM) said that the Union budget for the fiscal year 2016-17 is a mixed
bag for the Indian Automobile Industry. The Union Budget aims to boost the
rural economy of the country and the biggest positive in the announcements made
by Finance Minister Arun Jaitley, is the impetus given to the rural,
agricultural and infrastructure segment, he said.
The budget has focused on the
development of the roads, including the national highways and the rural roads
alike. An investment outlay of Rs 97,000 crore in the road sector, including
PMGSY allocation, has been made for 2016-17. The Finance Minister also informed
that as many as 85pc of the projects that were stalled, have been re-initiated
by the efforts of the Ministry of Road, Transport and Highways. The improved
infrastructure would further help the cause of the industry.
The industry, Dasari said, is
happy to note that a grant of Rs 200 crores have been made to the FAME scheme
and NATRiP. Moreover, the validity period of exemption granted to specified
goods for the use in the manufacture of electrically operated vehicles and
hybrid vehicles is being extended without time limit. This will help improve
the consumer sentiment around these vehicles and promote faster adoption.
But Sohinder Gill, CEO Hero Electric has a different view. "We
expected the budget to give us long term clarity on NEMMP so that the
manufacturer can plan business accordingly. There is no mention of Electric
vehicle in the budget except the continuation of concession import duty that
too only for one year. This has left all the manufacturers in the dilemma on
the government plan on promoting Green Technology," he said.
Amit Jain, Partner, M&A, BMR & Associates LLP noted the
additional taxes pertaining to the auto industry will mean that the cost will be
passed on the car manufacturers to customers, so expect increase in auto
prices. “Will have some impact on car
sales, but if the interest rates keep a lower trajectory (ie RBI cuts interest
rates coming forward), then EMI’s may not materially change,” he noted.
“There are no specific fiscal measures in the
budget to stimulate the auto sector as such.
The cess/ tax collection at source will dampen the spirits of the auto
sector. Significant outlay for roads and
highways will only provide some indirect/ trickle over effect to the industry
over time,” he added.
There was little on the
structural reforms front including Goods and Services Tax (GST). The tax
reform, considered the biggest in India’s nearly 70 years history as an
independent nation, has been automotive industry’s biggest demand from the
government. The tax reform found a mention in the minister’s speech but the
government failed to provide a roadmap for the reform which is facing stiff
political opposition, said a note from IHS
Automotive. IHS currently expects light vehicle sales in India to expand
10.3pc to 3.4 million units this year while sales of MHCVs is expected to
decline 3.7pc to nearly 330,300 units as a result of last year’s high base.
Ms. Mallika Srinivasan, Chairman
and CEO, Tractors and Farm Equipment Limited said, “It is heartening to
note that an emphasis on MNREGA has been retained although the increase in
allocation is modest, as original budget allocation for 2015-16 was around
Rs.35,000 crores. We hope to see
improved implementation on MNREGA, as the implementation on the ground during
2015-16 was disappointing.”
Dr. Pawan Goenka, Executive Director, M&M Ltd said, “The Budget
places strong emphasis on agriculture, rural economy, infrastructure and social
sector. This is what I was hoping for.
The resurgence and thrust on the PPP in infrastructure is most welcome....” But then he added that “On the face of it,
imposing upto 4pc cess for Passenger vehicles is a concern for auto industry.
However, one has to take it in stride, in view of all the priorities that we
have for our economy and we in the industry have to manage it. Would have been
good if some of the additional revenue from this cess was used to phase out
Ashok P Hinduja, Chairman,
Hinduja Group of Companies (India) said that the Budget is pragmatic and
growth-oriented. “The auto sector will stand to benefit by the proposed
amendment to the Motor Vehicles Act to allow the private sector participation
in the passenger vehicle segment”.
Sumit Sawhney, Country CEO & Managing Director, Renault India
Operations said the Government has succeeded in ensuring that the Indian
economy has held its own despite the prevailing uncertain environment and
global headwinds. But, policies for the automobile sector remained largely
unchanged, he said.
Shekar Viswanathan, Vice Chairman and Whole - Time Director, Toyota
Kirloskar Motor Pvt. Ltd, stated "We would have expected some measures
to promote alternate fuel technologies which would have helped the environment
also. We would encourage the government not to just think based on size of the
vehicle which has no relation to the technology. Taking older vehicles off the
road should be a priority for the government....”
Dr. Wilfried Aulbur, Managing Partner & CEO, India, Chairman Middle
East, Head Automotive Asia at Roland Berger, noted, “The budget overall has
been muted as far as passenger vehicles are concerned. The charges on luxury
vehicles and high capacity SUVs may not dent sales, but clearly, these charges
don't support demand either. The same holds true for the pollution cess on
various car models.”
But he noted that the “Increased
expenditure for rural areas is likely to increase rural demand and hence drive
consumption. This would overall be positive for the industry, increase capacity
utilization and in the long run drive private capital expenditure. Together
with the 7th pay commission and OROP this hopefully puts enough money into the
pockets of Indian consumers to support domestic growth. Global economies are
not doing very well. Exports into many markets with low or negative GDP growth
are falling and indicate the weakness in the global environment. Hence, India
will have to generate her own success story focusing on domestic fundamentals.”
Pankaj Munjal, Chairman and Managing Director, Hero Cycles stated
that the Finance Minister has chosen to deliver a budget that charts a new
direction to the economy with renewed reforms and resurgence. The government’s
commitment to keep fiscal deficit in check is a very assuring move so is the
focus on improving ease of doing business. The emphasis on road infrastructure
in particular would pave the way to a robust economy as well, he said.
Joe King, Head, Audi India said that while the budget presents a
transformative agenda with clear-cut focus on initiatives for farmers, rural
sector and infrastructure development, it negatively impacts the automobile
industry. “We are disappointed that the industry’s demand on reducing excise
duty has not been addressed,” he said.
JBM Group's Executive Director Nishant Arya noted that the budget
paves way for equitable growth through skill development and job creation which
in turn would lead to an exponential increase in demand for goods and services
in the economy.
Yadvinder Singh Guleria, Senior Vice President - Sales & Marketing,
Honda Motorcycle & Scooter India Pvt. Ltd. said the Finance Minister
has walked a fine rope of balancing social welfare with economic growth. “In
the backdrop of 2 consecutive weak monsoons, the Government’s focus on rural
sector especially farmer welfare, education, interest subvention on existing
loans and skill development will inject strength in rural economy. The Rs 1
lakh crore allocation on road and highways will accelerate connectivity and
mobility across all geographies led by rural areas, which is very positive news
for overall auto industry. Overall, we expect such measures once implemented,
will revive the stagnant demand of 2Wheelers in the rural market," he
Roland Folger, Managing Director & CEO, Mercedes-Benz India
said that while development of the agrarian sector emerged as the key priority
in this year’s budget, which is positive for the Indian economy, the taxing the
luxury cars will be deterrent for the growth of the industry.
Dr Raghupati Singhania, Chairman and Managing Director, JK Tyre &
Industries Ltd said “The nation would have to wait and see its
implementation, but the Budget
definitely generates substantial amount of positive sentiments....Although
there is nothing direct for the industry or for that matter manufacturing
sector, there is enough scope to generate demand and kick start the industry”.