Budget 2017: No shift in gears for auto industry

The Union Budget 2017-18 presented in the Parliament today was largely a non-event for the automobile industry, with analysts calling it somewhat predictable.

Finance Minister Arun Jaitley said he preferred to not make many changes in the current regime of Excise & Service Tax because the same are to be replaced by the much-awaited Goods & Services Tax (GST) soon. The rollout of the GST is likely to be delayed by three months to July, according to reports. The auto industry will be closely monitoring the same since it is likely to be a major game changer.

The auto industry expected the government to take some steps to spur vehicle demand in the wake of demonetisation. While finance minister Jaitley did propose a reduction in tax liability for those with annual income between Rs 2.5 and 5 lakh, to 5 percent from the current 10 percent, the move is unlikely to have a significant impact on car buying.

Moreover, lack of substantial new announcements to boost electric and hybrid vehicles has come as a surprise to the auto industry. Guillaume Sicard, president, Nissan India said, “There is nothing substantial for R&D for the automotive industry, EV and Hybrid vehicles, which is a dampener. We look forward to the implementation of GST for the automotive sector in the months to come to offer the much-needed stimulus to the auto industry and encourage buyer sentiment and consumer confidence.”

On the upside, however, the auto industry welcomed further allocations to the FAME (Faster Adoption and Manufacturing of Hybrid and Electric vehicles) scheme. The government has allotted Rs 175 crore as subsidy to the scheme for FY 2018 (Apr-March 2018), up from Rs 122.9 crore allotted last year. The scheme was to be reviewed for implementation after March 31, 2017, with appropriate fund allocation for the future.

“We were keen to know what happens to the extension of the FAME scheme since Phase One is getting over in March. To continue selling hybrid cars, the scheme is the most important thing,” a senior Toyota Kirloskar Motor official told Autocar India.  

Automobile industry body Society of Indian Automobile Manufacturers (SIAM) had urged the government to continue the current tax sops on R&D expenditure in an effort to boost innovation and manufacturing but there was no announcement made to that effect.

Meanwhile, the road and infrastructure sector has received a big boost in the budget. The budget allocation for highways has been increased from Rs 57,976 crore in FY2016-17 to Rs 64,900 crore in FY2017-18, while 2,000km of coastal connectivity roads have been identified for construction and development. This will facilitate better connectivity with ports and remote villages. 

“The total length of roads, including those under the Pradhan Mantri Gram Sadak Yojana (PMGSY), built from 2014-15 until the current year is about 1,40,000km, which is significantly higher than previous three years,” Jaitley said in his speech earlier today. Additionally, roadwork has accelerated to 133km roads per day in '16-17 under Pradhan Mantri Gram Sadak Yojna as against 73km/day during 2011-14, he announced.

Here are the comments by some automakers to the announcements made in the Union Budget 2017 - 

Roland Folger, MD & CEO, Mercedes-Benz India

“By allocating a greater amount to transportation, airports and highways, the focus will be greater on infrastructural development. This will help the auto sector’s growth during the long-term. The Finance Minister has hailed the clearance of GST related constitutional amendment bill and implementation of demonetisation as Tectonic policy initiatives. Even though no major indirect tax related changes have been made in the budget on account of the ensuing GST regime, Mercedes-Benz is hopeful that the government will take necessary steps to spur the growth of the luxury car industry, and help bring down the price of luxury cars. We hope GST will help recover the momentum that the auto industry in general, and luxury car industry in particular, lost in 2016." 

Rakesh Srivastava, Sr. Vice President - Sales & Marketing, Hyundai Motor India Limited

The budget allocation on infrastructure development will create investments, generate employment and enhance mobility across the country. Further income tax concessions to MSME and lower personal income tax will enable affordability of cars for entry level buyers. In addition, we are keenly looking to the early introduction of GST for simplification of tax structure  to bring more clarity to spur overall economic growth.

Vinod K Dasari, President, Society of Indian Automobile Manufacturers (SIAM)

The decrease in corporate tax rate for Micro, Small and Medium Enterprises will give relief to the tier 2 and tier 3 automobile component manufacturers and help them make investment for future expansion. Also, the reduction in personal income tax at the lower level will cheer the market and improve sentiments, boosting personal consumption expenditure, which should be helpful in enhancing demand for two-wheelers and small passenger vehicles. However, automobile sale depends on bank finance and there is an urgent need for recapitalization of banks, which cannot be adequately addressed with only Rs 10,000 budgetary support. There was a genuine case for continuation of 200% weighted deduction on R&D expenses for Auto industry, which remained unacknowledged in budget proposals. However, he expressed satisfaction that Rs 175 crores has been allocated towards funding of the electric & hybrid vehicle program, through FAME scheme.