Union Budget 2022: Indian Auto Industry Awaits Booster Dose

After a stellar show in FY18-19, the sector hit a rough patch due to several roadblocks, including BS-VI regulations, Covid-induced restrictions, and chip shortage in the consecutive years

The automobile industry (including component manufacturing) in India is expected to reach Rs 18 trillion by 2026, according to experts. Image: Getty

New Delhi: As the Union Budget 2022 is just round the corner, the Indian automobile industry, which is going through one of the toughest phases in the history, is expecting relaxation from the government.

After a stellar show in FY18-19, the sector hit a rough patch due to several roadblocks, including BS-VI regulations, Covid-induced restrictions, and chip shortage in the consecutive years.     

The automotive industry, which contributes to almost half of India’s industrial GDP, is reeling under serious pressure because of the Covid-19 pandemic.

The industry is expecting some sort of certainty in the tax and regulatory policies as it seeks a uniform Goods and Services Tax (GST) rate of 18 per cent on all auto components in the upcoming Budget. The current GST rate on some auto components is 28 per cent.

In its recommendations, the Automotive Component Manufacturers Association (ACMA), the top representative body of the auto manufacturers, asked the Centre to consider increasing Remission of Duties and Taxes on Export Products (RoDTEP) rates. RoDTEP is a flagship export promotion scheme that was brought in January 2021 as a replacement to the Merchandise Exports from India Scheme after the WTO ruled against the export subsidy programme.

According to ACMA, the RoDTEP rates for the auto components sector at 1 per cent or lower are inadequate to cover the incidence of unrefunded taxes and duties borne on export products. It is proving detrimental to the competitiveness of the auto component industry, the industry body said.

Sunjay Kapur, president of ACMA, said the auto component industry, being an intermediary, is witnessing one of the most challenging yet interesting times, as disruptions caused by the pandemic, new technologies, and regulations are redefining mobility.

Kapur in a statement said that because of the high GST rate of 28 per cent, the industry’s large aftermarket processes are plagued by grey operations and counterfeits, adding that an 18 per cent rate will not only address this issue but also improve the tax base through better compliance.

ACMA also suggested that the reintroduction of the investment allowance at 15 per cent for manufacturing companies that invest more than Rs 25 crores in plant and machinery will motivate manufacturers to invest in new technologies.

For encouraging research and development, it recommended the government retain weighted tax deduction, citing the gradual reduction from 200 per cent to 100 per cent between 2016 and 2021. Kapur said the government would be taking steps in the right direction if it allowed investments for capacity building and encouraged research and development.

According to analysts, the production-linked incentive (PLI) schemes extended for electric vehicles and advanced technology components, the vehicle scrappage policy, and announcements of PLI scheme for semiconductors are major positive steps. These have the potential to boost demand and resolve supply chain disruptions for the industry.

The automobile industry (including component manufacturing) in India is expected to reach Rs 18 trillion by 2026. Experts believe that the industry could clock strong growth in 2021-22 after recovering from the pandemic.