Auto industry welcomes Union Budget 2014

The new finance minister Arun Jaitley today announced the Union Budget 2014-15. First, running through the announcements that are a positive, Jaitley assured the automotive industry of the introduction of the Goods and Service Tax (GST) this year, the controversial retrospective tax was left unchanged, and a positive for small and medium enterprises (SMEs) came in the form  an investment allowance for manufacturing companies who wish to invest in plant and machinery. 

 

The Budget 2014-15 was deemed as a positive by the automotive industry. In the wake of existing limitations of a tight fiscal situation and the need to keep the fiscal deficit in check, the industry accepted that the budget did more than enough to address some of the key issues of the economy.

 

Getting into the details of the announcements, introduction of GST will ensure that all the other direct taxes levied on goods and services by the Central and State government are abolished, and GST is applied concurrently by the Centre and States. Introduction of GST has been pending for some time now, and will ensure higher revenue collection for the states. Jaitley said, "The government is committed to provide stable and predictable taxation regime that will be investor-friendly and spur growth". Sugato Sen, deputy general of SIAM welcomed the announcement said that once it is enforced, GST will enable a uniform tax structure and give a boost to industry growth.

 

Retrospective tax, too, on the other hand, has been a heavily debatable law in the country, and has also been a longstanding fear of the auto industry. Jaitley has previously supported abolishment of the retrospective tax, while in his role in the opposition. The retrospective tax was stayed in the budget today, however, it was left unchanged, ensuring no more liabilities are created by the by it. However, Jaitley said that all industrial issues, following certain retrospective amendments to the Income Tax Act 1960 undertaken through the Finance Act 2012, will be referred to a high-level committee constituted by the Central Tribunal of Direct Taxes before any action is initiated in such cases. This would ensure an investor-friendly environment to those looking to invest in the country.

 

There was reason to cheer for SMEs too. A 15 percent investment allowance was sanctioned for a three-year period to the manufacturing companies that are looking to invest more than Rs 25 crore in plant and machinery. This is will spearhead future investments in capacity augmentation in the auto industry. 

 

The much-needed continuation of excise duty cuts was already announced last month, which will be remain valid till December 31, 2014. This will provide a fillip to automotive sales, and June 2014 results, revealed by SIAM earlier, have already shown that the sector– particularly cars and two-wheelers – is beginning to look up. 

 

Sen is also optimistic about the focus given to building roads and highways that will help logistics and transportation. The roads sector constitutes a very important artery of communication in the country. Jaitley proposed an investment of Rs 37,880 crore, which includes Rs 3,000 crore for the North East, in the National Highways Authority of India and state roads. During the current fiscal, a target of national highway construction of 8,500km has been set. 

 

Other incentives for the sector will be the revival of the Special Economic Zones (SEZs), and making them into effective instruments of industrial production, economic growth, export promotion and employment generation. The Budget contains a host of infrastructure proposals indicating the government’s stated intention to give the sector a key boost. A sum of Rs 14,889 crore has been proposed for the PM’s Gram Sadak Yojana that provides connectivity to villages. Work will also begin on select expressways along some industrial corridors. Inland waterway from Allahabad to Haldia has been proposed, for which an outlay of Rs  4,200 crore has been allotted. It is expected to be built over the next six years. 

 

The government’s proposals to allow increase in FDI in insurance and defence were also welcomed. For the latter, the auto sector players like Ashok Leyland and Tata Motors will certainly open up opportunities going forward. 

 

Finally, it must be said that this budget is only valid for six months after which a new one will be presented for 2015-16, work on which should begin right after this Budget is passed.