Auto sector looks at support for growth in 2016

Auto sector looks at support for growth in 2016

Automotive sector is one of the key sectors in any economy. Around the globe, the automotive sector is tracked to assess the growth in the respective economies. India is also no exception to this.

Indian automotive industry is a major contributor to overall growth and development of Indian economy. The auto industry contributes overall 7.1 per cent of GDP and 26 per cent of industry GDP.

Automotive industry also generates both direct and indirect employment of roughly around 29 million people. The industry has grown to such an extend that around 88.8 Million vehicles were sold (all categories) and around 14.8 million vehicles were exported  (all categories) in 2015.

From 2016 to 2026, as per the Automotive Machine Plan, the automotive industry is expected to grow 3.5 to 4 times, from the current value of $74 billion to $260-300 billion. The automotive industry is expected to contribute around 12 per cent of India’s GDP and generate around 65 million more jobs.

In addition through new road transport and safety bill, we will soon have end of life policy for automotive vehicles and components and also India proposing to move to BS6 norms by 2020 to address the vehicle pollution.  The industry also looks to increase exports manifolds to reach 35-40 per cent of the overall output by 2026. It is extremely difficult to increase Industry contribution from 16-17 per cent currently to 25 per cent of GDP in next the eight to ten years without significant growth in the Indian automotive industry.

The next budget should have solid measure to create demand in this industry.  To have sustainable growth in the automotive sector, the demand creation in the rural economy is extremely important. If there is increased allocation to agriculture and infrastructure in budget, the demand would get created in the rural economy.

To increase the disposable income in hands of consumers, the budge should increase the slabs up to 20 lakh for individuals.  Looking at the transformation in the automotive industry in coming years, there is a significant investment required in the research and development activities. There is need to increase the tax deductions available on R&D expenses incurred, especially for new including fuel technologies. Skill is also one of the key issue facing this industry as more incentive needs to be offered so that both OEM as well as component supplier will benefit.

The overall tax rates on vehicles is very high in India. It ranges from 57 per cent to 82 per cent depending upon petrol, diesel and the vehicle size. The taxes include excise duty, CST, octroi, VAT, and road tax etc. There is a need to look at the tax rate and bring the tax rates down, at least on small cars, commercial vehicles, two-wheelers and three-wheelers. This will give a big push to the auto demand and it will also help the exchequer in increasing the tax revenue due to volume increase.

Offer more incentives for environment-friendly vehicles to push the customers towards these types of vehicles.  Owning EFV is high in India With the “Make in India” initiative there is a need to look at custom duties  structure on import of components and where required, customs duties needs to be raised in order to give a level

playing field to local component manufacturers. Some segments of auto sectors have inverted duty structure whereby they are paying more taxes on input and less taxes on output. This is creating huge cash flow issues for auto makers. This needs to be addressed. Currently we are not exporting significant volume compared to countries like Japan, South Korea, Germany, and Mexico etc, India now considered to be small car hub, increase incentive needs to offered to promote  export of small cars from the country.   

We have a significant number of old vehicles on the road which are contributing to environmental issues across the countries. A proper scrappage policy should be put in place to encourage customers to replace their old vehicles. This will be beneficial for all - customers, OEM, Government, and the society at large. The rough estimate is  old  vehicles on road roughly about 30  million private and commercial vehicles. Lastly, GST needs to implement at the earliest with competitive GST rates, to push the growth in the economy in general and automotive industry in particular.

(The author is a Partner, Assurance at PwC)

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