AUTOMOBILE SECTOR: KEY DEVELOPMENTS THIS YEAR
- Oil price: With global oil prices dropping nearly 50% in 2014 to a six-year low in Jan (Brent at $51 a barrel), the immediate impact is positive. But this presents a challenge for alternative fuel vehicles (CNG & electric vehicles) in the long term
- Liquidity: High interest rates hit the sector for most of the year, leading to muted consumer demand
- Slowdown: Slow economic growth and high inflation hit overall growth of the automotive industry
- Excise duty: Withdrawal of benefits on commercial vehicles beyond Dec 2014 is likely to affect sales until the second half of 2015
- Commodity prices: Fall in commodity prices is a good sign, as auto & ancillary firms can maintain margins
- Road map for GST: The proposed goods & services tax (GST) is to subsume all indirect taxes, including road tax, R&D cess and octroi, to prevent a cascading effect. Taxation on used vehicles should also be covered, as taxes like road tax are to be subsumed
- Duty concessions: Excise & Customs on identified parts of hybrid/electric vehicle parts should be extended for longer, instead of up to March 2015
- Vehicle replacement sops: Replacement of vehicles registered before 2000, when the first emission norms were introduced, needs to be incentivised
- Weighted R&D deduction: The 150% weighted deduction for skill development spend should be extended to diploma institutes, ITIs and other institutions
- Pawan Munjal, Vice-chairman, MD & CEO, Hero MotoCorp
The government might not announce any new concessions in excise duty. It would rather work on other key issues like developing infra — both hard and soft — simplifying the tax regime, and working on labour laws, to lay down a strong foundation for long-term growth.
There could be incentives to promote electric vehicles, as well as alternative fuel, primarily to increase consumer awareness and boost demand for such vehicles. Success of these is critical for energy security, as India currently imports 80 per cent of its crude oil needs. And, such vehicles also reduce carbondioxide emission.
There have been demands for sops on vehicle replacement. If there is such an announcement, it will help boost demand, especially in the commercial vehicle space.
Taxes up to the production cycle are normally under the central government’s control. And, states levy taxes up to the distribution stage, such as sales tax/value-added tax. Implementation of GST will address the complex indirect tax regime in India. I hope the government will give a clear road map for GST in the coming Budget, and that we will have competitive GST rates.