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Will Budget 2017 provide any respite? Auto sector waits with bated breath

The auto sector had a favorable growth enabling period till the October 2016 and with great expectations to meet the auto industry body Siam's estimates of a fairly decent double digit growth from a difficult past year or two. It was close to 15 percent growth for the period April to October 2016 and most categories of vehicles were showing signs of growth being revived in 2016-17.

However, with the announcement of demonetisation, a strong brake has been applied, and like a vehicle without an ABS (anti-lock braking system) it has locked/ skidded the growth momentum and expectedly the sector may not achieve the double digit growth this fiscal. To arrest the slide, announcements in the next day or two in the budget is expected to rekindle the spirits, hopefully, with the dust settling down on demonetization coupled with some good dosage of positive sentiments in the customers.

Auto companies hitherto have done their best offering the juiciest discounts and are continuing to make announcements in the form of new and feature filled vehicles attracting the customers to the counter. What can drive the sector back on to the revival path is expected to be a function of sops and impetus provided under the Income Tax, Indirect Tax and initiatives on the economic and social front in the budget and in this session of parliament. The sector like many others is waiting for some good news.



Increase in incentives, allowances and perquisites in the Income tax is expected to leave additional cash in the hands of the discerning public thereby increasing the discretionary spend. Increasing the base income limit above which taxes kick in, hiking the allowances like HRA, medical etc to be in line with the current cost of living is keenly expected by the employed class.

Bringing down the tax rates will presumably encourage compliance and facilitate higher tax collections and will be a win- win for both the government, business and the citizens.

On the indirect tax front, the announcements with regard to minimizing existing exemptions and concessions rate should take place in the budget as an attempt to reduce the gap between current regime vis-a-vis expected GST, which will facilitate negligible tax cascading impact and flawless credits across.

Some of these measures are expected to simplify and bring positive change to the cost structure. This is one sector which is keenly expecting GST to make a significant and positive difference to their performance. Overwhelmingly the whole sector would like lower slab rates under GST (18 percent) to be applicable to them, with higher rates probably making for the only distinction in luxury and non- luxury vehicles. Environment cess for luxury vehicles are misplaced and should be subsumed, since the numbers of vehicles are miniscule and the technology a deterrent for obnoxious gases.

The auto sector globally is into an interesting and exciting development phase. Technological developments which have revolutionized the sector since the early 20th century till now, though significant, pales in comparison over the developments which are currently taking place. The pace of developments over the next 10-20 years will be of a far greater magnitude in relation to what happened over a century since the first automobile hit the road. Connected vehicles, semi- autonomous vehicles, platooning, fully driverless (autonomous) vehicles, hybrid engines, battery driven vehicles are some of the often heard terms currently and the developments on these areas have been pioneering. What in effect some of these development means is increasing the safety aspects and making mobility an advanced, feature filled, simplified and a less challenging affair.

Encouraging investments into some of these developmental efforts in India will be a game changing initiative on the part of the government. Currently the automotive companies have realized the importance of India as a manufacturing center and have considered India as an important manufacturing base for some of their markets. Big players have established design and development centers in India which caters to different category of customers across the globe. R&D incentives or tax deductions should be increased to have more indigenously produced technology including for the likes of battery driven and semi-autonomous vehicles. Apart from encouraging more made in India products this will also provide savings on forex outlays on import of fuel and accelerating a cleaner and greener environment, which will also save India of millions of dollars. The support to the developers’ eco system, where AI and ADAS are merging automotive and information technology, will get India to be a leading key player in the next gen industrial revolution.

Infrastructure is the key for a continuous development of the economy and increased plan outlay and implementations in the road sector for quality world class roads will be encouraging to the sector on a longer term. Motorways which have hitherto been the path to the nether world for many an Indian, India has the dubious distinction of high rate of road accidents which maims or kills many, will have to give way to a pleasant ride to the users and admirable growth for the sector rather than contributing to a haphazard one. Other policy measures like scrappage policy providing incentives for mandatory scrapping of vehicles beyond 10-15 years will have a multiplier effect on the industry, environment and the economy. Indicating timelines for timely promulgation of this policy through the finance and fiscal bill will set at rest a policy in limbo for the last one year or so. Similar indications on the motor vehicles act for a stricter enforcement and compliance will greatly change the dynamics of the sector.

All these could work like an ESP (not Extra Sensory Perception but Electronic Stability Program) for the sector bringing in stability and for a quicker getaway to the growth path.

(The writer is Partner, Grant Thornton India LLP)

For full coverage of Union Budget 2017 click here.

Updated Date: Feb 01, 2017 08:44 AM

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