Automobile manufacturers will be hoping that the Budget gives a boost to demand through cut in income tax and increased allocation to rural India and increases infrastructure spends. The auto sector has put up a better show this fiscal, both in financial performance as well as delivering returns to investors. Earnings of the larger auto and auto ancillary manufacturers have grown 20 per cent in the first two quarters of FY17 when compared to a year ago.
Almost all the segments put up a good show in the first eight months of this fiscal. Passenger car sales were in the fast lane thanks to higher spends of urban consumers, successful new launches by auto makers and the yuppie crowd’s new-found love for utility vehicles. Light commercial vehicle sales improved in the first half of this fiscal and among two-wheelers, demand for scooters and higher-end motorbikes recorded a strong growth.
But the sector hit a speed bump in December owing to the Centre’s demonetisation move in November. This move has impacted December sales of almost all automobile manufacturers.
The Union Budget this year is going to be presented against this rather difficult background. With the implementation of the GST just a few months away, not too much is expected in terms of changes in indirect tax structure for auto makers. Currently, excise duty rates on automobiles vary with length of the car and engine capacity. Smaller cars, (those up to 4 metres in length with engine capacity of 1200 cc for petrol and 1500 cc for diesel) are subject to an excise duty of 12.5 per cent, larger cars and luxury vehicles that have a higher engine capacity attract high excise duty rates of 24 to 27 per cent. For SUVs, i.e. vehicles exceeding length of 4 meters and having prescribed ground clearance, the excise duty is as high as 30 per cent. There are demands that such multiple slabs and the link between tax levy and size of the car be done away with.
Under the GST regime, automobiles may fall under the 28 per cent GST rate, and an additional luxury cess would be applicable over and above the same on luxury cars. Thus prices of automobiles may remain more or less constant under the GST regime.
There is expectation that the scrappage scheme mooted by the Ministry of Road Transport and Highway could see the light of the day in the Union Budget. This scheme is still awaiting cabinet nod, and once implemented, is expected to boost the sales of all automobile manufacturers. The scheme proposes to take vehicles beyond a certain age (between 10 and 15 years) off the roads. This can help reduce pollution and improve road safety.
Under the scheme, surrender of the number plate of an old car could fetch an incentive of about ₹50,000-60,000 (or around 10 per cent of the cost of vehicle). The Ministry also proposes tax concessions and matching discount from the car manufacturer. Auto manufacturing is expected to increase by 20-25 per cent once this scheme is implemented.
There is also demand that the incentive given for purchase of electric and hybrid vehicles under the FAME scheme be extended beyond April 2017. This extension will help M&M, which has presence in this space.