It wouldn’t be wrong to say that the Auto Industry has pretty much received a step-motherly treatment in the 2016 Union Budget. By the looks of it, it is going to be another tough year for the auto-makers. The industry had voiced concerns over the excise duty structure for passenger vehicles (which, not to mention is properly confusing), incentives for manufacturing greener vehicles and most importantly, implementation of the GST before the budget. With the proposed budget, here’s why we think it's a bag of hurt for the Auto Industry.
More taxes!
SIAM, in its recommendation to the Government had suggested two key changes for boosting the Auto Sector. These included a simplified excise duty structure and an vehicle scrappage policy. While there’s no provision for incentivizing vehicle scrappage there’s been an increase in taxes for passenger vehicles. The additional levies are as follows:
- 1 % infra cess on small petrol/LPG/CNG cars (sub 4-m, with engine not exceeding 1200cc)
- 2.5 % additional tax on diesel cars ( sub 4-m, with engine not exceeding 1500cc)
- 1% luxury tax on all cars above Rs 10 lakh
- 4 % tax on big cars, SUVs (above 4-m with engines bigger than 1500cc)
These changes will hit auto-makers like Mahindra&Mahindra and Toyota quite hard. For instance, M&M has two of it’s best performing vehicles - the Scorpio and the XUV5OO that attract not just the extra 1% luxury tax, but also the additional 4% SUV tax. At the end of the day, the additional costs will simply be passed on to the customer.
Dr. Pawan Goenka, Executive Director, M&M Ltd shared his views on the 2016 Union Budget: “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. I also appreciate laying down some very clear goal posts on farm income and on village electrification. Perhaps more could have been done for financial sector and taxation, though staying with the FRBM target was an unexpected bold move and perhaps does put some spending constraints on the Government. On the face of it, imposing upto 4% 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 older vehicles.”
Nothing in it for the eco-friendly!
The previous budget saw an allocation of 75 Cr under the FAME scheme to promote and incentivize electric vehicle production & usage. This doesn’t really give the EV industry the push it requires. The only silver lining, is that the concessions in excise for the EVs shall continue.
Mr. Shekar Viswanathan, Vice Chairman and Whole - Time Director, Toyota Kirloskar Motor Pvt. Ltd. said: "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. We complement the measures and schemes which have been introduced to benefit the masses and also thrust on infrastructure which would have a long term impact on the growth of the nation."
No mention of a scrappage scheme!
An inclusive scrappage scheme would have proved to be a trigger for the junta to trade in their old smoke-bellowing cars for cleaner, newer vehicles. This not only takes the polluting vehicles out of the roads, but also proves to aid sales of new passenger vehicles.
With auto - aficionados crying themselves hoarse over the Delhi diesel ban, one would expect the Government to take note that it isn’t new cars (or even SUVs for that matter) that pollute as much as ill-maintained, old vehicles. We’d stress on ill-maintained, purely because there are old cars that are the pride and joy of few garages that tick all the right boxes when tested for emissions.
Mr. Sumit Sawhney, Country CEO & Managing Director, Renault India Operations had the following view: “Citing pollution and the traffic situation in cities as a matter of concern, there is a proposal to levy a cess of 1% on small, petrol and CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs.
While doing this, the industry was hoping that the Government should have taken progressive steps such as introducing a ‘scrappage incentive scheme’, to keep older cars off the roads and would not have impacted the industry. Such a policy will benefit the environment, reduce fuel consumption and also propel further demand for greener and efficient vehicles.”
Is there a silver lining?
The silver lining comes in the form of the focussed approach towards Infrastructure. The National Highway Authority of India is to raise Rs. 15,000 Cr via bonds in 2017. Also, a massive Rs. 97,000 Cr sum has been allocated for the development of roads. This sum will be majorly for the announced 10,000 kilometers of new national and state highways. Improvement and upgradation of 50,000 kilometers of existing roads is also on the cards. This will lead to a rise in demand for passenger vehicles and two-wheelers in rural and semi-urban areas.
The Wrap-Up
With the new Automotive Mission Plan 2016 - 2026 being chalked, The Government of India aims to make automobile manufacturing the poster boy of the "Make in India" initiative. It envisions the passenger vehicles market to triple from the current 3 million to 9.4 million units by 2026. However, with the kind of treatment being doled out to the industry, it is hard to see how. The additional levy will cause a ding in demand for vehicles and subsequent sales as well. The positives remain a the focus and commitment on building better roads, developing the rail-network and the ports.
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