New Delhi: The Budget 2021-22 came as a mixed bag for the automobile industry with the much-awaited scrappage policy coming to fore, though with a voluntary tag to it, and some increase in taxes on critical components like powertrain aimed at making India self-reliant, even as automakers hint at price hikes on the anvil.
“The increase in duty on auto components was unexpected during this revival period. It will increase production cost, leading to higher cost for consumers,” Martin Schwenk, managing director and CEO, Mercedes-Benz India, said in a media release. “There could have been further push towards e-mobility by lowering import duties on EV,” he added.
The managing director of Skoda Auto Volkswagen India, Gurpratap Boparai, said the increase in customs duty on certain auto parts to 15% will further increase input costs and prices for cars that depend on specialised components that cannot be manufactured locally due to unviable volumes.
The auto industry overall hailed the budget and welcomed the scrappage policy that was in the making for decades. The FM Nirmala Sitharaman announced it based on fitness tests in the period of 20 years for personal vehicles and 15 years for the highly exploited commercial vehicles.
The president, Society of Indian Automobile Manufacturers (SIAM), Kenichi Ayukawa, did not say anything on the price hike. “The government has adopted an expansionary stance with a thrust on infrastructure building with measures for efficiency improvement and increasing competitiveness. Good macroeconomic growth will translate to good auto sector demand. Specifically, the vehicle scrappage scheme has a good intent and the auto industry would be keen to work with the Government on suggestions for maximizing benefits to the environment and society.”
The proposed vehicle scrappage policy will provide thrust on the procurement of new automobiles and have a strong positive effect by boosting Atmanirbhar Bharat.SS Kim, Hyundai Motor India
The industry has been lobbying hard to develop a scrapping procedure that would help rejuvenate it by replacing the older vehicles and create a residual industry out of these scrapped older vehicles.Hyundai Motor India managing director and chief executive officer SS Kim, said the proposed vehicle scrappage policy will provide thrust on the procurement of new automobiles and have a strong positive effect by boosting Atmanirbhar Bharat.
Vikram Kirloskar, vice chairman, Toyota Kirloskar Motor, said from an auto industry perspective, the long-awaited voluntary scrappage policy can help take older vehicles off the roads and contribute to lower fuel consumption, pollution and generate additional demand for cleaner new vehicles.
“We at Toyota Kirloskar Motor have continuously worked for creating a self-reliant and competitive local manufacturing eco-system and are eagerly looking forward to the details of the Production Linked Incentive scheme that can potentially make India a part of the global supply chain for both traditional and advanced automotive technologies,” he said.
L Viswanathan, partner, Cyril Amarchand Mangaldas, said, “The announcement of a scrappage policy is expected to significantly boost the auto industry and also contribute to a clean India. It is expected that this policy would nudge electric vehicles which would also be a boost for manufacturing in India and will trigger investment in clean technology and also reduce our fuel import bill.”
On the other hand there’s a sum of INR 18,000 crore to support acquisition of over 20,000 buses that is expected to propel sales in the beleaguered commercial vehicle market and generate incremental volumes for manufacturers.
The announcement of a scrappage policy is expected to significantly boost the auto industry and also contribute to a clean India. It is expected that this policy would nudge electric vehicles which would also be a boost for manufacturing in India and will trigger investment in clean technology and also reduce our fuel import bill.L Viswanathan, partner, Cyril Amarchand Mangaldas
The positive signals for the manufacturing sector in the Budget 2021 were welcomed by Ashok Leyland MD and CEO Vipin Sondhi. He said, “The Rs 18,000-crore scheme to augment public transport in urban areas with the addition of 20,000 new buses in a PPP model would ensure cleaner and efficient public transportation and ease congestion.”
The government has also come out with steps to support the MSME sector. In this Budget, it has provided INR 15,700 crore to this sector, more than double of last year, that could help the automobile dealerships that come under the preview of (MSME), and provide some benefits. Also the allocation of INR 50,000 crore for the National Research Foundation could help the industry develop some cutting edge technology to become self-reliant.
It was not only EVs that were missed in the budget, as Martin Schwenk said, it was also the failure to address the sensitive issue of not ‘rationalising the GST’ on the automobile industry that is the single largest contributor in this revenue stream and is also the largest organised manufacturer in the country.
Another factor that would make commodities expensive is the imposition of Agriculture Infrastructure and Development Cess (AIDC) on petrol and diesel. Even if the government has cut the basic excise duty (BED) and Special Additional Excise Duty (SAED) rates to avoid any financial burden on the consumer, the basic excise duty of INR 1.4, and INR 1.8 per litre, respectively, on unbranded petrol and diesel will bring the burden in some way to the market.
Depressed sales bother the automobile industry the most. “It is important to keep in mind that even in the coming financial year, the passenger vehicle market is unlikely to reach the 2018 levels and the much-required rationalisation of GST and abolition of cess to aid the auto industry was missing,” Boparai added.
Automotive Component Manufacturers Association President Deepak Jain said the increase in basic customs duty on select auto components will encourage local manufacturing of such items and help India in its path of Atmanirbhar.
The auto industry is likely to get a major fillip from the scrappage scheme. Road Transport, Highways and MSMEs Minister Nitin Gadkari said the policy will lead to new investment of around Rs 10,000 crore and create as many as 50,000 jobs. Adding that the policy would cover over 1 crore light, medium and heavy motor vehicles.
Many of the automotive players like Maruti Suzuki, Tata Motors and Mahindra & Mahindra are already probing scrappage opportunities in the Indian market and are developing it as a full-fledged business activity across India. Now it is dominated by the unorganised sector.
