The automotive industry is one of the key industries within the manufacturing segment, and has both forward and backward linkage to several key segments of the economy.
This is gauged through contribution made by the auto sector to the Indian economy such as 7% contribution to overall GDP, 26% to industry GDP, 49% to manufacturing GDP, and the industry also contributes 12% to overall excise collections.
The automotive industry employs around 20 million people directly and indirectly. This sector has challenges such as high indirect tax incidence on vehicle purchase, too many excise duty slabs (there are five excise duty slabs depending upon the vehicle length and engine size), not enough incentive for buying environment-friendly vehicles (EFV), inadequate infrastructure to support EFV, tax cascading, inverted duty structure impacting few segments, inadequate incentive for research and development including skill development, no incentive to replace old/polluted vehicles, and high finance cost (over 80% of the vehicles are purchased through borrowing).
This Budget has focused on reviving the rural economy and creating better infrastructure to support the growth in the country. In addition, the finance minister has also rolled out few incentives to put more money in the hands of small tax payers.
These initiatives should definitely help some segment of automotive sectors such as two-wheelers, tractors as well as commercial vehicles. The commercial vehicle growth trajectory will also continue on the back of BS IV norms which will be effective from April 1, 2017.
There are some negative factors in the Budget, especially for bigger vehicles such as infrastructure cess ranging from 1-4%, withholding tax on vehicles more than Rs 10 lakh. Surprisingly, there were no big announcements made to promote environment-friendly vehicles.
Negative impact
There were no incentive offered for replacing the old vehicle. Promoting public transport through amendment of Motor Vehicle Act is a good move, but this may have a negative impact on personal mobility.
The government intension to implement GST at the earliest is a welcome move.
Hopefully, this should bring down incidence of high tax on the vehicle purchase.
Overall, the Budget should at least help some segment of the auto sector positively (ie., two-wheelers, commercial vehicles and tractors), and some negatively (passenger vehicles, luxury cars and utility vehicles).”
(The author is the partner of automobiles at PwC India)
