Automotive industry grins and bears it, as usual

Picture caption: Union Minister for Finance, Corporate Affairs and Information & Broadcasting, Arun Jaitley departs from North Block to Parliament House along with Minister of State for Finance,  Jayant Sinha to present the General Budget 2016-17, in New Delhi on February 29, 2016. Picture courtesy: PIB

As has always been happening in the past, the Indian automotive industry has been left with no other choice, but to grin and bear it and pretend everything is hunky- dory. An additional 1 per cent tax will now be collected at source on purchase of cars exceeding value of Rs 10 lakh. There will also be an infrastructure cess of 1pc on small petrol, LPG, CNG cars, a 2.5pc on small diesel cars of less than 1500 cc and 4pc cess on other higher engine capacity vehicles and SUVs. All this would be levied with immediate effect. All those now going out to buy passenger vehicles will have to fork out a bit more for their dream machines.

Companies like Toyota, Mercedes and M&M have already been dealt with a body blow when a few months back the Supreme Court banned sale of diesel vehicles above 2000cc in Delhi National Capital Region.  But the Indian auto industry is not looking at this; rather it is positive on some of the Union Budget proposals that talk of macro-economic developments.  

Vinod Dasari, President, Society of Indian Autombile Manufacturers (SIAM) said that the Union budget for the fiscal year 2016-17 is a mixed bag for the Indian Automobile Industry. The Union Budget aims to boost the rural economy of the country and the biggest positive in the announcements made by Finance Minister Arun Jaitley, is the impetus given to the rural, agricultural and infrastructure segment, he said.

The budget has focused on the development of the roads, including the national highways and the rural roads alike. An investment outlay of Rs 97,000 crore in the road sector, including PMGSY allocation, has been made for 2016-17. The Finance Minister also informed that as many as 85pc of the projects that were stalled, have been re-initiated by the efforts of the Ministry of Road, Transport and Highways. The improved infrastructure would further help the cause of the industry.

The industry, Dasari said, is happy to note that a grant of Rs 200 crores have been made to the FAME scheme and NATRiP. Moreover, the validity period of exemption granted to specified goods for the use in the manufacture of electrically operated vehicles and hybrid vehicles is being extended without time limit. This will help improve the consumer sentiment around these vehicles and promote faster adoption.

But Sohinder Gill, CEO Hero Electric has a different view. "We expected the budget to give us long term clarity on NEMMP so that the manufacturer can plan business accordingly. There is no mention of Electric vehicle in the budget except the continuation of concession import duty that too only for one year. This has left all the manufacturers in the dilemma on the government plan on promoting Green Technology," he said.

Amit Jain, Partner, M&A, BMR & Associates LLP noted the additional taxes pertaining to the auto industry will mean that the cost will be passed on the car manufacturers to customers, so expect increase in auto prices.  “Will have some impact on car sales, but if the interest rates keep a lower trajectory (ie RBI cuts interest rates coming forward), then EMI’s may not materially change,” he noted.

 “There are no specific fiscal measures in the budget to stimulate the auto sector as such.  The cess/ tax collection at source will dampen the spirits of the auto sector.  Significant outlay for roads and highways will only provide some indirect/ trickle over effect to the industry over time,” he added.

There was little on the structural reforms front including Goods and Services Tax (GST). The tax reform, considered the biggest in India’s nearly 70 years history as an independent nation, has been automotive industry’s biggest demand from the government. The tax reform found a mention in the minister’s speech but the government failed to provide a roadmap for the reform which is facing stiff political opposition, said a note from IHS Automotive. IHS currently expects light vehicle sales in India to expand 10.3pc to 3.4 million units this year while sales of MHCVs is expected to decline 3.7pc to nearly 330,300 units as a result of last year’s high base.

 Ms. Mallika Srinivasan, Chairman and CEO, Tractors and Farm Equipment Limited said, “It is heartening to note that an emphasis on MNREGA has been retained although the increase in allocation is modest, as original budget allocation for 2015-16 was around Rs.35,000 crores.  We hope to see improved implementation on MNREGA, as the implementation on the ground during 2015-16 was disappointing.”

Dr. Pawan Goenka, Executive Director, M&M Ltd said, “The Budget places strong emphasis on agriculture, rural economy, infrastructure and social sector.  This is what I was hoping for. The resurgence and thrust on the PPP in infrastructure is most welcome....”  But then he added that “On the face of it, imposing upto 4pc cess for Passenger vehicles is a concern for auto industry. However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles.”

 Ashok P Hinduja, Chairman, Hinduja Group of Companies (India) said that the Budget is pragmatic and growth-oriented. “The auto sector will stand to benefit by the proposed amendment to the Motor Vehicles Act to allow the private sector participation in the passenger vehicle segment”.   Sumit Sawhney, Country CEO & Managing Director, Renault India Operations said the Government has succeeded in ensuring that the Indian economy has held its own despite the prevailing uncertain environment and global headwinds. But, policies for the automobile sector remained largely unchanged, he said.

Shekar Viswanathan, Vice Chairman and Whole - Time Director, Toyota Kirloskar Motor Pvt. Ltd, stated "We would have expected some measures to promote alternate fuel technologies which would have helped the environment also. We would encourage the government not to just think based on size of the vehicle which has no relation to the technology. Taking older vehicles off the road should be a priority for the government....”

Dr. Wilfried Aulbur, Managing Partner & CEO, India, Chairman Middle East, Head Automotive Asia at Roland Berger, noted, “The budget overall has been muted as far as passenger vehicles are concerned. The charges on luxury vehicles and high capacity SUVs may not dent sales, but clearly, these charges don't support demand either. The same holds true for the pollution cess on various car models.”

But he noted that the “Increased expenditure for rural areas is likely to increase rural demand and hence drive consumption. This would overall be positive for the industry, increase capacity utilization and in the long run drive private capital expenditure. Together with the 7th pay commission and OROP this hopefully puts enough money into the pockets of Indian consumers to support domestic growth. Global economies are not doing very well. Exports into many markets with low or negative GDP growth are falling and indicate the weakness in the global environment. Hence, India will have to generate her own success story focusing on domestic fundamentals.”

Pankaj Munjal, Chairman and Managing Director, Hero Cycles stated that the Finance Minister has chosen to deliver a budget that charts a new direction to the economy with renewed reforms and resurgence. The government’s commitment to keep fiscal deficit in check is a very assuring move so is the focus on improving ease of doing business. The emphasis on road infrastructure in particular would pave the way to a robust economy as well, he said.

Joe King, Head, Audi India said that while the budget presents a transformative agenda with clear-cut focus on initiatives for farmers, rural sector and infrastructure development, it negatively impacts the automobile industry. “We are disappointed that the industry’s demand on reducing excise duty has not been addressed,” he said.

JBM Group's Executive Director Nishant Arya noted that the budget paves way for equitable growth through skill development and job creation which in turn would lead to an exponential increase in demand for goods and services in the economy.

Yadvinder Singh Guleria, Senior Vice President - Sales & Marketing, Honda Motorcycle & Scooter India Pvt. Ltd. said the Finance Minister has walked a fine rope of balancing social welfare with economic growth. “In the backdrop of 2 consecutive weak monsoons, the Government’s focus on rural sector especially farmer welfare, education, interest subvention on existing loans and skill development will inject strength in rural economy. The Rs 1 lakh crore allocation on road and highways will accelerate connectivity and mobility across all geographies led by rural areas, which is very positive news for overall auto industry. Overall, we expect such measures once implemented, will revive the stagnant demand of 2Wheelers in the rural market," he stated.

Roland Folger, Managing Director & CEO, Mercedes-Benz India said that while development of the agrarian sector emerged as the key priority in this year’s budget, which is positive for the Indian economy, the taxing the luxury cars will be deterrent for the growth of the industry.

Dr Raghupati Singhania, Chairman and Managing Director, JK Tyre & Industries Ltd said “The nation would have to wait and see its implementation, but the  Budget definitely generates substantial amount of positive sentiments....Although there is nothing direct for the industry or for that matter manufacturing sector, there is enough scope to generate demand and kick start the industry”.