Union Budget reactions from the Indian auto industry

Finance Minister Arun Jaitley presented the General Budget for the year 2015-16 in Lok Sabha on February 28, 2015. The Budget has no direct impact on the automotive industry. Though the industry had hoped for an excise relief, it did not happen. There were some minor duty reductions as the Excise duty on chassis for ambulances was reduced from 24pc to 12.5 pc. Also, the concessional customs and excise duty rates on specified parts of Electrically Operated Vehicles and Hybrid Vehicles, at present available up to March 31,2015 was extended up to March 31, 2016. Here are the reactions from the industry:

SOCIETY OF INDIAN AUTOMOBILE MANUFACTURERS (SIMA): Vikram Kirloskar, President, SIAM welcomed the budget and termed is as ‘forward looking’ and addressing both, the social sector as well as the industry in an “inclusive fashion”. Concessional customs and excise duties on select parts used in the manufacturing of Electric & hybrid vehicles have been extended for a year, which is a positive move, he said.

SIAM hailed the Finance Minister for having accorded approval to the Scheme on Faster Adoption of Electric and Electric Mobility (FAME). Although the initial allocation of Rs. 75 crores is very modest, industry hopes that over the next a few months, more resources would be allocated for promoting this new and green technology area, which can be a game-changer for the automotive industry. SIAM had earlier requested for a rise in the customs duty on commercial vehicles from 10pc to 40pc. The effective rates have been increased to 20pc which is a welcome change. The reduction in excise duty on the chassis of ambulances from 24pc to 12.5pc is also a positive step.

A re-affirmation of the date of implementation of GST from April 2016 shall help the manufacturers develop more concrete long term plans on the products and investments, SIAM noted. The reduction in the corporate tax from 30pc to 25pc over the next 4 years lays down a clear roadmap which removes the uncertainties for industry.

The budget lays huge emphasis on development of the infrastructure throughout the country and shall boost the prospects of a wide range of industries including the automobile particularly the commercial vehicles industry. A strong focus on the rural development including substantial allocation under MNREGA would also ensure improved demand from the non-urban centers which will benefit the auto industry.

Kirloskar said that in the forthcoming budgets he would expect emphasis on renewal of the vehicle fleet through fiscal incentives. Fleet renewal would help both the industry and the society in terms of the environment, health etc, he added. SIAM would have liked to see a reduction or moderation in the excise duty on vehicles particularly for large vehicles attracting 30pc excise duty which has not happened. We hope that the Finance Minister would reconsider the high taxation on cars in the future, he added.

SOHINDER GILL HERO ECO: In a press release, Sohinder Gill, Director- Corporate Affairs, Society of Manufacturers of Electric Vehicles (SMEV), noted the Society has welcomed the announcement on interim National Electric Mobility Mission Plan (NEMMP) towards promoting Electric Vehicles and supporting charging infrastructure and R&D investments.

"We would like to thank the Central Government for clearance of National Electric Mobility Mission Plan (NEMMP). The government has offered good support to EV's however the variable VAT structure in states where in some states where VAT is as high as 14.5% may nullify the effect.

The government has given an incentive package worth Rs 14,000 crore to encourage demand and supply of electric and hybrid vehicles in the country. The package announced in the budget, aims to provide relief for technology development and research, create charging infrastructure and directly give a subsidy to the consumer for buying the vehicle," he said.

“It’s like a life saver for the ailing companies who had invested into the environmentally friendly vehicles but were bleeding heavily because of the lack of government support. In addition to supporting the industry NEMMP will create a significant positive impact on the health index of country by promoting zero pollution electric vehicles and reducing the dependence on the fossil fuel.”

Gill believed that the biggest beneficiary of the NEMMP will be companies manufacturing electric two wheelers and small electric cars, who have managed to survive through the difficult years and have been still active in the market. NEMMP is also likely to trigger the entry of many of the major automotive players to start launching electric and hybrid vehicles, he felt.

“Now that the centre has cleared the roadmap for the growth of electric vehicles in India, SMEV expects states to join in to support this initiative. At present many states like UP, Punjab, Haryana, Maharashtra etc have been charging VAT as high as 14pc or more, road tax of 4 to 6pc, nullifying the NEMMP’s incentives. SMEV requests such states to immediately revert to 0 VAT and eliminate road tax for few years,” he noted.

The government has an ambitious target of putting five million electric and hybrid vehicles on the road by 2020. Gill said that SMEV is confident that this figure can be achieved if NEMMP is continued for its committed period of 6 to 8 years, state government pitch in with their support and the manufacturers invest in technology and capacity building.

GM INDIA: Arvind Saxena, President & Managing Director, General Motors India said that “The budget looks to be a pragmatic one as it focuses on infrastructural development, education, skill development, agriculture, irrigation, health care, social security schemes etc.  Given the condition of the economy, the direction given in the budget is a positive one and the call for fiscal prudence looks good.  The government’s intention to introduce GST, reduce the corporate tax from 30 to 25 per cent over a 4 year period, simplification of the tax regime, financial sector reforms, GAAR deferral etc are encouraging news.”

Saxena felt that the steps outlined for the manufacturing, power, coal and mining sectors should spur economic activity going forward.   “Having said this,   a monitoring mechanism should have been in place to ensure timely implementation of the projects in these sectors. As far as the automotive industry is concerned, we were expecting excise duty cut on all categories of vehicles as the auto industry continues to bleed due to high interest rates, economic slowdown etc. There are some changes in CST and also on customs duty which need to be clarified from the fine print. Having said this, the focus on rural roads, highways, expressways, incentives for electric vehicles are welcome decisions.  Some of the other announcements made by the finance minister on the direct taxation front are also positive steps.  Overall, the budget lays down a blue print for a stable tax regime that can lead to growth in the economy.  These proposals and announcements made in the budget, if implemented effectively, should have a positive impact on industry and the economy as a whole going forward.  The challenge now is the implementation of the proposals.  Our hope is that the market will respond favourably,” he added.

RENAULT INDIA: Sumit Sawhney, Country CEO and Managing Director, Renault Operations in India said that it is a “well-balanced budget. It included a lot of positive measures to give impetus to infrastructure growth. Another positive was the announcement of a firm date on GST, which was a key pre-budget expectation. Although we will have to study the fine print of the budget in terms of clear programmes to boost investment, manufacturing and skill development, the directional focus is in sync with the overall expectations to boost growth.  Taking cue from what was shared about reform being a continuous process, we hope for ongoing measures and policies to maintain a healthy balance between interest rates, inflation and arrest the fall of the rupee, which will benefit the economy. Although the budget didn’t have much for the automobile sector, we are hopeful for some pro-business policies in the near future to benefit the industry."

MERCEDES-BENZ INDIA: Eberhard Kern, MD and CEO, Mercedes-Benz India said that “The commitment to infrastructure, announcement of GST with a specific timeline and a simplified tax structure greatly enhances ease of doing business in India. These positive steps will simulate growth and should indirectly help the automotive market. It is crucial now that these measures are implemented within the next 12 – 18 months to accrue desired results. Mercedes-Benz has already committed to the "Make in India" campaign investing a total of 1,000 crore in its manufacturing facility and has the largest installed capacity in the luxury car segment."

YAMAHA MOTOR INDIA SALES: Roy Kurian, Vice President, Yamaha Motor India Sales Pvt.Ltd said that “Amidst the sky-rocketing expectations from across sectors from the first full-term Union Budget of the Modi government, the automobile industry has little reason to smile. However, keeping up the positive sentiments, we see some indirect positives including reiteration of GST implementation timeline of April 2016, significant increase in allocation of funds towards road-building and reduction in corporate tax rate from 30pc  to 25pc  over the next 4 years. The overall economic recovery and growth with positive parameters, GDP, rupee growing stronger etc., are a source of excitement for any business operating in India”.

“Further, the government’s sincere focus on rural development and allocation of a huge sum of Rs. 34, 699 crores for rural growth is a good move as companies plan to target the untapped potential of the rural market. Next, the intentions of making India a manufacturing hub through ‘Make In India’ campaign will also give manufacturers under the auto sector an added advantage. Also, the initiatives on skill development will provide for skilled labour and expertise in our respective sector,” Kurian noted.

AUDI INDIA: Joe King, Head, Audi India said, “It is no doubt a visionary budget with focus on long-term growth of the country. We welcome the move towards the rollout of GST next year. We are happy to see the emphasis placed on boosting infrastructure. This will go a long way in fulfilling the government's vision to make India the fastest growing large economy in the world. We welcome the reduction of Corporate Tax as well as focus on infrastructure via various schemes and investments. However, we expected more of a direct support to the auto industry which has been contributing, significantly to the GDP. The FM’s focus on working towards creating a universal social security system for all Indians, specially the poor and the under-privileged is commendable. However increase in service tax is a setback for common man.”

NISSAN INDIA:  Arun Malhotra, Managing Director, Nissan Motor India Private Limited  said that “We were looking forward to a stronger emphasis on the automobile industry from budget 2015 but there doesn’t seem to be much momentum on that front. While we expected the incentives on EV to be more than what has come from the Finance Minister, we are happy that there is progressive step in this direction. Also, the 0.14pc excise duty hike on small cars and 2 wheelers does not have much of an impact. The industry would have benefited a lot had the excise duty benefits been extended but this budget has the potential to raise the consumer sentiment which will help the industry grow. There were concessions given on some identified components for EV’s in the past and these concessions continue for another year; we welcome this move.”

APOLLO TYRES: Onkar S Kanwar, Chairman, Apollo Tyres Ltd noted that “This is a truly reformist budget and I’m most heartened to see that the Finance Minister has set a solid roadmap for the Indian economy. There are big changes for business as expected and the most awaited reform – that of GST, has been finally announced. This is bound to reinvigorate industry and will make definitely make manufacturing more competitive. The GST, by subsuming a large number of central and state taxes into a single tax will help establish what we need - a common national market.

The additional focus on roads and rail infrastructure along with an increased spend of Rs 70,000 crore will also prove to be beneficial for the economy as well as the tyre industry. The announcement of the commissioning of five "ultra-mega" generation projects to end India’s chronic power shortages is another commendable step to ending our infrastructure woes. The further reduction in Corporate Tax from 30pc to 25pc in four years is also a huge positive for us, as it will provide yet another fillip to the ‘Make in India’ story.

“However, I continue to be hopeful that the Finance Minister will also address the anomalies of the inverted duty structure in the immediate future and give a fillip for tyre manufacturers to 'make in India'”

ASHOK LEYLAND: Vinod K.Dasari, Managing Director, Ashok Leyland noted that the “Main budget feels like solid middle order batting that follows an explosive opening knock by the Railway Minister.  Three themes in this budget are critical to industry.

“The first theme is infrastructure. Over 100,000 km of roads have been targeted over and above the massive push in the rail sector, in addition to the discontinuous investments in public amenities through the Swacch Bharat Abhiyaan. The massive boost in infrastructure spend (Rs 70,000 crores), as well as the mechanisms announced to fund it, will kick-start a virtuous cycle, resulting in significant primary demand for commercial vehicles.

“The second theme is grassroots entrepreneurship. MUDRA bank, formed to refinance MFIs, as well as the Jan Dhan – Aadhaar- Mobile program are both directed towards creating grassroots entrepreneurs. By entering the formal banking system, the poor get access to lower cost finance, especially once the overdraft facilities kick in in Jan Dhan accounts.  Grassroots entrepreneurs require low cost transport, and this will drive demand for SCVs.

“The third theme is reform. Introducing a new bankruptcy law, announcing a roadmap to lower corporate taxes and other such actions are clearly directed towards making India more competitive to do business. Continued push in this direction will encourage more players to enter India, bringing investments as well as boosting economic activity”.

While there has been no excise duty modification in the automotive sector, he said he believed that long term demand creation is more sustainable than short term sops to boost consumption. The government has moved in exactly this direction with this budget, he said.

“The Government has also correctly decided to drive small, incremental improvements rather than big bang reforms. In our own experience, the centerpiece of any turnaround is not a big, innovative idea but Mission Mode execution. This Government has demonstrated its ability to execute in Mission Mode, for example, during the rollout of Jan Dhan Yojana. I believe that this will continue," he felt.

FORD INDIA: Anurag Mehrotra, Executive Director, Marketing, Sales and Service at Ford India said, “We welcome the government’s clear focus on promoting infrastructure and investment in the Union Budget. We also compliment a clear roadmap for GST implementation and expect this, along with a clear focus on infrastructure development, to aid economic growth in the long-term. A concerted effort to strike a balance between economic and social indicators for growth has been outlined by the Government. This is certainly positive and encouraging.”

SCANIA:  Anders Grundströmer, Managing Director, Scania India and Senior Vice President, Scania Group said  that, “We at Scania feel overall, this is a balanced budget with emphasis on Manufacturing as part of Make in India along with appropriate importance to skilling India. We also like the Government’s commitment to make the development process as environment friendly as possible. While the increase in customs duty for commercial vehicles is disappointing , overall – the positives outweigh the negatives. The clear commitment to implement GST by 1st April 2016 which is a game changer, easing of norms to aid flow of technology, flow of capital, and focus on sustainable development along with a road map of clearly stated goals in terms of 1 Lakh KMs of roads, doubling the clean energy cess on use of coal and launch of a scheme for faster adoption are all measures in the right direction. However, we would have liked to have seen more clarity around the country’s biofuel agenda and sustainable solutions in the transport sector. Bio-ethanol promises carbon savings of about 70 percent. Overall, the broad contours are all positive and we look forward to partnering with India on this exciting journey.”

SKF INDIA: Shishir Joshipura, Managing Director, SKF India Ltd noted, "With this ’high on governance’ budget, the government has moved away from sectoral SOPs completely and has focused on critical macro points such as transparency, ease of doing business and social welfare. Steps taken towards creating a transparent model of governance and project clearances, setting a direction for GAAR is a clear and positive message to the investors towards ease of doing business. The roadmap for reducing corporate tax gradually is a welcome move that will drive investments. Infrastructure, an important sector has got a positive impetus . This budget has got something for everyone, focussing on issues which aim to drive sustainable and inclusive growth in a true sense."

Sigma Freudenberg NOK Pvt. Ltd. ( SFN ): Sigma chairman J D Singh said “The offer of easing doing business in India with stress on  replacing multiple prior permissions with a pre-existing regulatory mechanism and raising of infrastructure investment by Rs 70,000 crore  in the Union Budget 2015-16 ,India will soon have all ingredients to become global sourcing hub for automotive components and other make in India products.

“Union Finance minister Arun Jaitley in his budget for the fiscal year 2015-16  has announced move towards ease of doing business and promised to integrate all regulatory permissions at one source . This will help India become a investment destination as well as generate more jobs with more industry being set up in various parts of the country” said Singh. Sigma group is one of the largest manufacturer and exporter of auto components in the country. The Group has recently set up its  second Indo-German and Japan joint venture production  facility in Basma, Punjab  for manufacturing of critical oil seals and sealing products for Domestic and Global automotive industry with a total investment of Rs.185 crore.

“In order to ensure adequate availability of skilled man-power to achieve the objectives of ‘Make in India’ initiatives, the government’s  plan to launch a National Skills Mission through the skill development and Entrepreneurship Ministry is also welcome. Our auto component industry has shortage of skilled manpower, that will be overcome” said Singh ‘

“Suitable regulatory environment will accelerate the growth momentum as India dia is ahead of many of its far-eastern neighbours, including China in such parameters as design and engineering capability, quality supply and customer and after sales support in the auto component sector” said Jagdip Singh .

INDSUR GROUP:  SM Lodha, Chairman, Indsur Group of Companies in a press release stated, "The announcement that the much awaited Goods and Service Tax (GST) will be introduced on April 1, 2016, will definitely rejuvenate the industry.  GST will make manufacturing more competitive and support the 'Make in India' Campaign. How fast the Finance Minister will move the wheels of change to usher in GST will be keenly watched in the coming days.

“While other than infrastructure spending there are no visible and concrete steps that could be seen on the 'Make in India' campaign. However reduction in corporate tax will benefit only few large state-owned enterprises and corporates. The budget will not inspire the business communities as a whole, all said and done much more was expected which could have benefitted all sections of society." Indsur Group is a Mumbai-based global business house with operations spread over in more than five countries.  The group has strong presence in manufacturing of steel castings, auto components, pipes, steel and steel related products.

Federation of Automobile Dealers Associations (FADA): Fada maintained that the Finance Minister had presented a balanced budget with emphasis on infrastructure development and ‘Make in India’.

The increased allocation in infrastructure and  rural development, and emphasis on Make in India will put the economy on high growth trajectory, thereby fuelling the auto market, it felt.

KVS Prakash Rao, President, FADA said that a welcome announcement in the Union Budget 2015 is the assurance that GST will be introduced from 1st April 2016.

“ The auto market in India has been reeling under acute slowdown for the last three years.  We, in FADA, were expecting special measures including softer excise duty regime and high depreciation rates in respect of motor vehicles, for giving boost to the auto sector.

We hope that the Finance Minister will consider incorporating lower excise duty and higher depreciation rates in respect of motor vehicles, before the Budget is finally passed by the Parliament,” he said.