UNION BUDGET 2021-22 & INDIAN AUTO INDUSTRY

For those in the electric vehicle industry, they got nothing as a sop directly. The most meaningful sop for the auto industry was the announcement of a voluntary vehicle scrapping policy that will phase out old and unfit vehicles, and provision for fitness tests for vehicles in automated fitness centres. In case of personal vehicles the time period for scrapping will be 20 years, while it would be 15 years for commercial vehicles. 

The Budget also proposed innovative PPP models to run more than 20,000 buses that will boost the automobile sector, provide fillip to economic growth and create employment opportunities for the youth. The Minister also proposed that the duty on certain auto parts be increased to the general rate of 15%.

But it must be remembered that one man’s meat is sometimes another man’s poison. While the Automotive Components Manufacturers Association (ACMA) noted that the increase in basic customs duty on select auto components will encourage local manufacturing of such items, the Society of Indian Automobile Manufacturers (SIAM) noted that the increase in customs duty on auto parts / lithium ion cell parts is of concern and is likely to increase cost of manufacturing automobiles, wherever indigenisation is yet to happen.

SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS: Calling it a visionary budget, the Society of Indian Automobile Manufacturers (SIAM) President Kenichi Ayukawa said the budget focusses on three broad themes. First, it is a remedy for the current challenges post-Covid with its focus on human health and asset reconstruction. Second, it gives a major impetus to infrastructure with a 5-year roadmap for fiscal consolidation. Third, it takes bold measures for enhancing efficiency and competitiveness like privatisation, competition in power distribution companies, City Gas Distribution (CGD) expansion in 100 more districts and takes into account enablers like infrastructure financing. “A good macro-economic growth will translate to good demand for auto sector also,” said SIAM.

The announcement of major highway projects with sizeable increase in infrastructure outlay will help revive demand for both commercial vehicles and private vehicles. The allocation for procurement of 20,000 buses will directly benefit the industry. The addition of 100 new districts to the city gas distribution network for natural gas will help clean, efficient and affordable mobility for the country.

“While SIAM awaits the details of the Vehicle Scrappage scheme, it hopes and requests that fitness testing and certification should be much earlier and at frequent intervals to ensure safety, environment friendliness and fuel saving,” it noted.

The reduction in customs duty on some steel grades, and revoking of countervailing duty and anti-dumping duty on certain steel products is a welcome step. Since platinum, palladium and rhodium are not available in India and are essential for emission control, their duty could have been made Nil, SIAM noted.

The increase in customs duty on auto parts / lithium ion cell parts is of concern and is likely to increase cost of manufacturing automobiles, wherever indigenisation is yet to happen, said Kenichi Ayukawa of SIAM

AUTOMOTIVE COMPONENTS MANUFACTURERS ASSOCIATION: Deepak Jain, President, ACMA, said, “The vision of an Aatma-nirbhar Bharat enshrined in the Union Budget, coupled with the ‘Sankalp’ of ‘Nation-First’ will be the bedrock to propel us further as we redefine our economy in a post-pandemic world. Significant outlay for vaccination in the country will add to the confidence of a resurgent India.”

“Announcements with regards increased spend on road infrastructure, voluntary scrappage policy, Research & Development and PLI among others, augur well for the automotive sector. Further, continued focus on building rural and agricultural infrastructure and prioritising agriculture credit growth will have long-term positive impact on rural demand for vehicles”, added Jain.

Jain further mentioned, “Increase in basic customs duty on select auto components will encourage local manufacturing of such items. It is also heartening that the budget outlay for the MSME sector has been doubled compared to last year. The auto component industry is dominated by MSME and this will provide them the necessary succour as the industry recovers.”

FEDERATION OF AUTOMOTIVE DEALERS ASSOCIATIONS: Vinkesh Gulati, President of the Federation of Automotive Dealers Associations (FADA)  hailed the scrappage policy announced by the Finance Minister. “If we take 1990 as base year, there are approximately 37 lakhs CVs and 52 lakhs L PVs eligible for voluntarily scrappage. As an estimate, 10% of CV and 5% of PV may still be plying on road. We still need to see the fine prints to access the kind of incentives which will be on offer and thus have a positive effect on retail,” he said.

 He further added that the 6,575 km highway work proposed in Tamil Nadu, Kerala, West Bengal and Assam and another 19,500 km work  of the Bharatmala project will definitely add fillip to much needed revival of Commercial Vehicles especially M&HCV segment.

He also said that the Government’s reduction of customs duty on steel products to 7.5% will benefit Auto OEMs.  But he added that, “While we expected disposable income for individuals to increase with enhancement of IT slabs and depreciation benefit on vehicles for individuals, the same has not been taken into consideration.”

ASSOCIATION OF INDIAN FORGING INDUSTRY: Vikas Bajaj, President, Association of Indian Forging Industry (AIFI) said this year’s Union budget is positive, as well as a progressive one with a strong drive towards the country's socio-economic growth. It focuses on the Railways, Power, Health Infrastructure, Banking, Insurance and Agriculture sectors. The positive step of reduction in customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels would certainly contribute to better raw material prices and reduced input costs.

“The increased government attention on the highways and infrastructure sector would definitely contribute to a significant impact on the manufacturing and Auto industry and help in employment generation which is the most critical need to revive the economy," he added.

AUTOMOTIVE SKILLS DEVELOPMENT COUNCIL: Nikunj Sanghi, Chairman, Automotive Skills Development Council (ASDC) said that the Union Budget 2021 has given due importance to skilling and education which is a welcome move in today's skill-driven industry. The government’s focus on supporting local manufacturing, skill development, and a heightened emphasis on job creation will lead to greater opportunities for the youth of the country. 

“In addition to that, the partnership with the United Arab Emirates and Japan to promote industrial & vocational skills, techniques, and knowledge is a major boost for the sector. Also, since automotive is the biggest organised employer in the country, hence the realignment of the existing scheme of national apprenticeship training scheme for providing post-education apprenticeship training of graduates and diploma holders in engineering over 3000 crores is also a positive sign for automotive skilling,” he noted. 

TATA MOTORS:  Guenter Butschek, CEO & MD, Tata Motors said that the significant increase in overall allocation towards capital expenditure has been complemented with comprehensive measures to catalyse multiple levers- focus on rural, infrastructure investment, impetus to manufacturing, social welfare, entrepreneurship and digital - to enable overall holistic development.

He too acknowledged the Finance Minister’s announcements on voluntary vehicle scrapping policy, augmenting public transport system in urban areas, continuing focus on adoption of cleaner fuels, and enhancing outlays for developing road infrastructure and expanding the Swachh Bharat Mission.

MERCEDES-BENZ INDIA: Martin Schwenk, Managing Director and CEO, Mercedes-Benz India that though his company welcomes the policy stability that the budget provides to the industry by no new announcement of direct taxes, “we would have liked some reduction in compensation cess. It’s good to see some positive movement through the scrappage policy and we also expect the capital expenditures to indirectly help the industry. The decision to spend more on infrastructure despite of the high fiscal deficit, will boost the overall economic revival and we should see positive impact on the PV market. However, the increase in the rise in auto component duties is unexpected in such revival period, and it will increase the production cost, leading to higher cost for consumers. There could have been further push towards e-mobility by lowering import duties on EV.”

ASHOK LEYLAND: . Vipin Sondhi, Managing Director and Chief Executive Officer, Ashok Leyland, SAID THAT THE Finance Minister has unveiled a well thought out budget anchored by six key pillars. This could set out a virtuous cycle for Growth and Job creation spearheaded with a thrust on Public investment in Infrastructure and Health. The key will be in effective implementation.

He said the commitment to augment the country's road infrastructure with projects for building 8,500 km of highways and economic corridors augurs well for surface and road transport.

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.

He also termed the voluntary scrappage policy as a positive announcement. “The thrust on R&D for National Priority Projects and the PLI scheme will be key enablers to attain our Prime Minister’s vision for Atmanirbharta in the manufacturing sector,” he added.

SKODA AUTO VOLKSWAGEN INDIA PRIVATE LIMITED: Gurpratap Boparai, Managing Director, Skoda Auto Volkswagen India Private Limited said the Budget augers well to create capacity for developmental and growth in the country. “Increased outlays in the road sector, infrastructure development and introduction of the voluntary vehicle scrappage policy will not only create a safer and environment-friendly auto sector but also drive replacement demand in the sector. The support announced for the rural economy and farm sector will be a big boost for wealth creation in the non-urban markets and increase the scope for auto demand in these regions. While further details of the prior announced PLI scheme is awaited, the same is expected to help the Indian auto industry to improve production efficiency and become self-reliant - "atmanirbhar',” he said.

Boparai pointed out that, “It is important to keep in mind that even in the coming financial year, the passenger vehicle market is unlikely to reach the level of 2018 and the much-required rationalisation of GST and cess to aid the auto industry was missing. Additionally, the increase in customs duty on certain auto parts to 15% will further increase input costs and prices for cars which depend on specialised components which cannot be manufactured locally due to unviable volumes.” 

VOLKSWAGEN PASSENGER CARS:  Ashish Gupta, Brand Director, Volkswagen Passenger Cars said the Budget has the potential to revive the economy at large. “The focus on the six pillars, with greater impetus on healthcare, infrastructural and connectivity development and rural economy will have a positive impact on the businesses. With respect to the auto sector, increase in custom duty on certain auto parts would impact the input cost, although we’re yet to assess the financial impact. On the voluntary scrappage policy, strict governance on the fitness test would determine the benefit on the environment and pollution reduction,” he added.

JK TYRE & INDUSTRIES LTD: Dr. Raghupati Singhania, Vice-President JK Organisation and Chairman & Managing Director of JK Tyre & Industries Ltd, said the Minister had presented a ‘pro-growth’ budget in these unprecedented times, which will give a boost to the Indian economy which is on path to recovery. “Rightly, there is a huge emphasis on infrastructure, which will help revive economy as well as generate employment. Finally the much awaited scrappage policy has been announced, which is a welcome step.  This will increase sale of new vehicles and in turn boost tyre demand. Refocus on healthcare and skill building is very critical for a healthy growth of Aspirant India. The key, however, is faster implementation of the various important measures announced, which will have a meaningful impact on economy,” he said.

GREAVES COTTON: Nagesh Basavanhalli, Group CEO & MD, Greaves Cotton Limited noted that the government’s resolve to support manufacturing and infrastructure sector is commendable. The emphasis on government spending in building pan-India transport and allied infrastructure should have a positive impact in reviving consumer demand for vehicles. The allocation of a sizeable sum towards the PLI scheme will help the industry create jobs and boost economic growth. While the auto sector would have liked to see more direct measures in the budget, the Scrappage policy is certainly a step in the right direction, he added.

SOMA COMSTAR: Sunjay Kapur, Chairman, Soma Comstar said though the initial reaction of the Budget is a positive one, over the next few days, as the interpretation kicks in, the implications of the Union budget will gain clarity. Giving it a thumbs up for now, Kapur said that a significant emphasis on healthcare and infrastructure is very positive.  “The highlights for me include, the positive step towards the roll out of scrappage policy with a defined 20 years for private vehicles and 15 years for commercial vehicles. There is an increase in custom duty by 15% on certain auto parts. The LIC IPO in 2022 was a long-awaited announcement. Along with that, a PSU bank, one Insurance company, and other disinvestment plans will lead to liquidity for the government. Air India, BPCL, SCI, CONCOR disinvestments to head to the finish line. And Niti Ayog structuring a next list of disinvestments is the government getting back to business is an upswing. The FDI limit increased significantly shows a promise to further India’s presence on a global platform, 49% to 74% in the Insurance sector is a good leap in the positive direction. Removal of GST anomalies shows that they are fine tuning the GST implementation. An important announcement was the vaccine roll-out. In never dealt before situation, the Rs 35000 crore expenditure on vaccination is a much-needed step to bring confidence in our country to find a semblance of normalcy. The announcement of spending on infrastructure (Rs 118,000 crore for Ministry of Roads) is strategically well-allotted funding via the set- up of a professionally- managed Development Finance Institution (DFI). As the network of public transports solidifies across Tier II cities, the usage of metros and public buses leads to an inevitable increase in job opportunities,”, Kapur stated.

JBM: Nishant Arya, Executive Director, JBM Group said that the allocation of Rs 18,000 crore for the public bus transport services has come as a sigh of relief for the bus makers who have been caught in the doldrums from 2019. The proposed PPP model will in turn help the sector to create employment as well and overcome the adverse effect of the pandemic. “We, as an industry player, are now looking forward to the details of the vehicle scrappage scheme which will be an added advantage for the auto sector. The heavy and medium commercial vehicle sector will also have a boost in demand as a sum of Rs 5.54 trillion has been allocated for infrastructure development. The 2.5-5 percent reduction in the customs duty on some of the semi-finished and finished steel products will have a positive impact on the automotive industry,” he said.

CUMMINS INDIA: Ashwath Ram, Managing Director, Cummins India said that at a first glance, it appears to be a progressive budget. “There is a focus on the socio-economic development of the country with an emphasis on Railways, the Power sector, infrastructure, healthcare, and enhanced digital connectivity. The voluntary policy on the scrapping of vehicles will have a positive impact and will drive the commercial vehicle and auto sector forward. The industry wanted an incentive-based scheme so we are still seeing the details. In addition, MSMEs and other user industries have been severely affected by the recent sharp rise in iron and steel prices. The industry will definitely receive a push by the decision to double the allocation of MSME and reduce the customs duty on some of the steel products. The focus on highways and the infrastructure investment plan will definitely give the necessary impetus to the CV and construction equipment businesses," he added.

KPMG:  Waman Parkhi, Partner, Indirect Tax, KPMG in India said that the “customs duty rates on certain auto parts such as safety glass, electrical lighting and signaling equipment, windscreen wipers, etc. has been increased from 15% from the current rate of 7.5%/10% with an objective of promoting Indian manufacture of goods. 13 PLI schemes for various manufacturing sectors will also positively support such manufacture. Voluntary vehicle scrapping policy besides contributing to lower emissions and improving safety on road would also generate demand for vehicles for the Auto sector”.

NIPPON PAINT INDIA: Sharad Malhotra, President – Automotive Refinishes and Wood Coatings, Nippon Paint India said that with an expansionary Budget that focuses on growth, the Finance Minister “has delivered on major counts. The Budget has announced a massive infrastructure boost with huge outlay for Railways and privatising airports. Along with this, measures that will increase consumer spending and make India more self-reliant are a step in the right direct. Fitness testing for both PVs and CVs is a positive move that will not only generate employment opportunities but also ensure a cleaner environment. Our sector has got a favorable boost in form of FM's voluntary vehicle scrappage policy announcement.”

SCHAEFFLER INDIA: Harsha Kadam, CEO Schaeffler India and President, Industrial Business said that this budget has the ingredients to deliver long term growth. “The government is bullish on public spending and we are encouraged by it. We were certain that Budget 2021 would surely consider the gloom that hovered over the Indian auto industry and it is reassuring to see that it did. The infrastructure boost will surely benefit the heavy and medium commercial vehicle segment, which was much needed. The voluntary scrappage policy implementation is surely a step in the right direction keeping in mind the environment and auto industry at large. We have been awaiting it for a while and this is a step forward for sure. In fact, the announcement regarding the PLI scheme investments is going to play an accelerator for the manufacturing sector, which has seen really tough times along with the auto industry. This gives reason for double celebration as it will encourage global manufacturing firms and also provide incentives for local manufacturing firms to expand. This is a huge step in terms of creating jobs and opportunities for the youth. This budget has been very progressive for the railways as well, an important sector for us. The decision of commissioning dedicated freight corridors which will not only improve the overall movement of goods but also spur economic activities in the long run. The continued push for investment in railway with the additional allocation towards MetroLite and MetroNeo for smaller cities for bodes well in the long run. The only caution here is to look at the inflating fiscal deficit.”

CARS24: Ruchit Agarwal, Co-founder and CFO, CARS24 noted that "The 2021 Union Budget is a big booster for spearheading the economy’s growth. We are glad the Government has announced investment in road infrastructure coupled with announcement of scrappage policy. These will bode well for the auto industry as they will help it achieve the twin objectives of boosting demand whilst recycling old and polluting vehicles in our country. While we look forward to the minute details of the policy, ensuring seamless execution will be key.”

Agarwal further stated that with the government allowing one man companies and increasing the threshold for the definition of small companies, “we expect and hope that used car dealers in India will consider shifting from sole proprietorship to companies. This will make them further organised and open up different forms of financing markets for them. Extension of one year tax holiday will also prove to be a welcome move for start-ups in India. We are sure that the announcements made under 2021 Union Budget will help sustain the pace of growth witnessed in the last few months in the auto industry."

COOPER CORPORATION: Farrokh Cooper, Chairman & MD, Cooper Corporation Pvt. Ltd found the Budget 2021 optimistic, “driving the country towards Aatmanirbhar Bharat by putting significant stress on Railways, Power sector, infrastructure healthcare, banking, insurance, and agriculture, which will not only enable the country to revive its economy but will also stimulate growth.”

He too lauded the voluntary policy on the scrapping of vehicles and said this would have a positive effect and will move the commercial and automobile industries ahead. The industry would definitely be encouraged by the decision to double the allocation of MSME and to reduce the customs duty on steel. Focusing on highways and the investment plan would certainly give the CV and construction equipment the requisite impetus. The government’s increased focus on the infrastructure sector will certainly bring in positive impact, he added.

CREDR: Sasidhar Nandigam, CoFounder & CSO, CredR, India's largest omni channel used two-wheeler consumer brand, said post Covid Budget has been balanced given the situation where the entire economy is struggling.  “There are few good steps taken by the government. But we were expecting more. Most importantly, they have not taken any measures on relief in the direct taxation as this would have had a direct impact on consumerism and the ability to purchase private automobiles or apply for a personal loan. We welcome the steps taken in the scrappage policy and extension of tax holiday for start-ups. For startups, this comes as a breath of fresh air to the struggling startup ecosystem. With the pandemic disrupting business and earning this year, the amount saved from this tax holiday will help startups to reinvest this money into building business," noted Nandigam.

SKF INDIA: Manish Bhatnagar, Managing Director, SKF India note that the this Budget is “one of a kind” and has aimed at the revival of the economy. “Along with bringing cutting edge technology, increasing the demand for new commercial vehicle and passenger vehicles, creating new jobs, schemes like the PLI and voluntary scrappage policy are likely to nurture and boost the Indian manufacturing industry to become an integral part of the global supply chains. Furthermore, ensuring liquidity in the economy and unhindered flow of capital, the package for roads and railways infrastructure is bound to give an impetus to the covid-hit economy. The robust push to infrastructure including economic corridors, manufacturing and MSME’s collectively, is likely to help boost demand for heavy and medium duty CV’s,” stressed Bhatnagar.

PUMPUMPUM: Tarun Lawadia, Founder & CEO, PumPumPum, the only company in India to offer used car leasing in corporate and retail segment, said the voluntary vehicle scrapping policy will certainly strengthen India’s fight against pollution across cities and promote fuel efficient vehicles and EVs in the country. “A capital investment of Rs 5.54 trillion in developing road infrastructure around the country is expected to boost the sales and demand for commercial vehicles giving some relief to the auto sector. But increasing customs duties on some auto parts to 15% will put more pressure on the already struggling auto manufacturing sector of the country. Auto industry has always been a key contributor to India’s economic growth and job creation. We expected the Union Budget to be a game-changer for the worst-hit auto sector. In the near future, we have high hopes from the government to encourage the startup ecosystem for new consumer trends such as used car leasing, car rental, car subscription models etc. which are going to be the promising industries of the future and can boost the growth of Indian auto sector,” he said.