Automobile News, Opinion

How the 2014 Union Budget will effect the Auto Industry?

The Indian automotive scene has a seen quite a slump and the industry was expecting a boost from the newly-elected government.

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Some of the industry expectations from this year’s budget included a cut in Excise duty to 10% on automotive parts, timeline for the introduction of the GST, Fleet modernization scheme, withdrawal of the 1% National calamity Contingent Duty (NCCD) and fund allocations for National Electric Mobility Mission Plan.  Here are some points that are a part of the new budget that effect the industry and the industry reactions.

Implementation of Goods and Service Tax (GST)

This is something that the auto industry has been demanding for a long time and the finance minister, Mr. Jaitley said that it will be implemented within this fiscal year itself. This will replace all direct taxes levied on goods and services by the Indian central and state governments. The industry hopes for an early implementation of GST.

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“The corporate sector was expecting a timeline for the roll out of GST. But the government’s intention to introduce CenGST and also the DTC after review is very encouraging news.” – Arvind Saxena, Preseident & MD, General Motors India

FDI in Insurance to go up to 49%.

Expect increase in the competitiveness in the insurance sector. Also a change in the way your insurance premium is calculated, considering factors such as past history of claims, location of home & work (Parking conditions and safety), age group, safety features on the cars, nature of work and gender beyond the standard consideration of make, model, service history and life of the vehicle.

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“This would encourage foreign investment and will further augment free flow of knowledge and intellectual cross-fertilization,  benefiting the insurance sector as a whole” – K K Mishra – CEO & MD, Tata AIG

Development of Road Infrastructure.

There is no doubt that if proper infrastructure in terms of roads and connectivity plays a major role in the auto sector. An allocation of 37,880 crores for National & State Highways and 14,389 crores for rural roads will help increase the complete transportation frame work. This benefits the industry in the long term.

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“We welcome the announcements related to infrastructure growth such as development of 100 smart cities and rural roads development.” – Joe King, Head, Audi India

National Electric Mobility Mission Plan

An allocation of 24 crores through the ministry of heavy industries provides an initial boost for electric and hybrid vehicle research and manufacturing. However no direct incentives for electric vehicles were announced.

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“We did expect an announcement on incentives for electric vehicles which did not come through” – Dr. Pawan Goenka, Executive Director, Mahindra & Mahindra Ltd.

Reduced Excise Duty Rates to be retained for now

The interim budget saw an announcement for reduced excise duty. This has been extended and the industry hopes that these rates of duty are extended even into the next calendar year.

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“Excise duty benefits announced in the interim budget have been extended till December 2014 and any further changes would depend on the demand in the automotive sector in the next five months.” – Abdul Majeed, Partner, Price Waterhouse Coopers

No Measures for the Commercial Vehicle industry

The commercial vehicle segment has seen slump for more than 2 years now. No measures have been taken for the recovery of this sector. However, indirect measures such as emphasis on growth in infrastructure and manufacturing sector will help boost Commercial Vehicle Industry growth.

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“With mining activity expected to pick up, we also expect a demand trigger for commercial vehicles which has been seeing negative growth till now,” -Umesh Revankar, MD, Shriram Transport Finance Co.

Reduced Steel Prices & Elimination of Customs Duty on Auto Components

Steel is one of the most important input material used in the industry.The elimination of customs duty will be a relief to companies who are trying hard to localize components to keep production costs under check. This is a huge boost we hope to see some of it being passed on to the consumer.

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“Aspects like the continuation of excise duty concessions along with reduction in steel prices and elimination of customs duty on auto components bode well for the sector.” – Kencichiro Yomura, President, Nissan India

Investment Allowance

A proposed allowance of 15% to companies who invest more than 25 crore in a year in new plant and machinery. This is expected to stay for 3 years.

Bottom Line: 

Although the industry expected bolder reforms, measures such as reduced steel prices, extension of excise duty concession and elimination of customs duty of auto components are all a silver lining for the industry. The overall budget has tried to balance from all quarters. The budget is realistic with a long-term view rather than a quick fix treatment and has stayed away from populist measures.

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