Budget 2019: Automobile and Auto Ancillary Industry Status Report & Expectations

Budget 2019: At present, the Indian automobile industry is the 4th largest in the world and has witnessed 9.5% year on year growth in sales. The country’s automobile exports grew 20.78% in the first half of 2018.

Budget 2019: Over the past years, the BJP led government has kept its focus on developing the automobile and auto-ancillary sector.

Budget 2019: Over the past years, the BJP led government has kept its focus on developing the automobile and auto-ancillary sector. 100% FDI inflows under automatic route, Automotive Mission Plan (AMP) 2016-26, and campaigns like ‘Make in India’ strengthened the government’s aim to make India a global manufacturing hub and Research & Development centre. At present, the Indian automobile industry is the 4^th largest in the world and has witnessed 9.5% year on year growth in sales. The country’s automobile exports grew 20.78% in the first half of 2018. On the other hand, the Auto components industry in India contributes 2.3% of the GDP and has grown by a decent 18.3% in recent times. Out of total production volume in FY18, 81% was contributed by two wheelers, 3% each by three wheelers & commercial vehicles, while 13% was shared by passenger vehicles. India has an edge over Europe and Latin America when it comes to cost of input material and skilled labour. The automobile and auto ancillary industries have seen massive investments from German manufacturers like Continental & Schaeffler, besides Hyundai, Mercedes Benz and Honda. Budget 2018 brought a major boost to the automotive and auto-ancillary industry. The BJP government had set out various schemes for the agriculture sector besides development of rural India which indirectly benefitted the auto industry. Increase in income in the hands of rural population up-surged the demand of two wheelers, while better credit facilities for farmers impacted tractor and other utility vehicle sales in India. Expanding working population and growing income levels of the middle class also boosted the sale of two wheelers and small car segments. The country witnessed growth in the luxury segment too. Sales of premium motorbikes crossed one million units in FY18, while luxury car manufacturers like BMW and Mercedes Benz registered growing sales in the first half. The improvement of roads under ‘Bharat Mala’ led to better connectivity across the country which too has pushed sales of utility as well as other commercial vehicles. For Budget 2019, the automotive industry has demanded a One-Time incentive in the form of rebate in taxes for replacing pre-2000 registered vehicles in order to take them off the Indian roads. As per the industry bodies, 80% of pollution in India and road accidents are contributed by vehicles that are more than 15 years old. Thereby, replacement of pre-2000 registered vehicles will not only spur automotive sales but also reduce the perils of pollution in a country which has been called out multiple times on international platforms. The proposed one-time incentive can be in the form of reduced GST, lower interest rate on car loans, or rebate in road tax for replacement vehicles. The automotive industry has also proposed the government to give up multiple tax rates for passenger cars. In the past five years of Modi government, the taxes on small cars have been hiked from 10% to 12.5%, while for SUVs and large cars the taxes have been raised to the highest GST slab rate of 28% besides infrastructure cess of 1 to 4%. A special tax rate for electrification of vehicles has also been suggested by the representatives of various automobile industries in a pre-budget meeting last month as the Finance Ministry has time and again taken measures to promote electric vehicles. The automotive industry has also recommended the government to double the customs duty for CBUs of commercial vehicles from 20% currently to 40%.