Budget 2020 Wishlist: Here are the key challenges for automobile sector

Sector snapshot

The FY20 year-to-date (April to December) domestic sales volumes in all vehicular segments witnessed a sharp decline with passenger vehicles and commercial vehicles  reporting 16% and 21% drop, respectively. The key reason is subdued customer demand due to liquidity crunch and higher cost of finance and insurance. Like the last quarter, firms will focus across its value chain to ensure smooth transition to BS-VI.

Key challenges

Higher upfront cost: Customers are required to pay a higher upfront insurance premium for two - wheelers and four - wheelers and hence, sales volumes have dipped in these segments

Shift to BS-VI: The shift to BS-VI by April 2020 will be challenging for automakers as it will result in price increase which is likely to adversely impact demand 

Liquidity crunch: The demand was impacted due to squeeze in the NBFC financing
 

Industry expectations

• Reduction in GST rate applicable to automobiles to 18% from the current 28% to absorb the extra price impact of shift  to BS-VI
• A cut in personal income tax rate will provide more disposable income in the hands of consumers, which could lead to automotive demand recovery

Kavan Mukhtyar, Partner & leader (Automotive sector), PwC India

PwC quote

“FY20 has been one of the most challenging years for the sector due to record decline in demand, increased costs and liquidity crunch. We expect the Budget to address the immediate concerns of demand revival and create an environment for sustainable growth in the sector” 

Rajeev Chaba, President & managing director, MG Motor India

Industry voice

"The Budget announcements will be key to setting the tone for 2020 for the industry. The government’s announcements on promotion of EVs is encouraging. However, we feel more work needs to be done to promote EV adoption in India not only in public transport but among private customers as well.”

We hope that the government provides the right policy, incentives, and charging infrastructure to put more EVs on the road. It should also look at providing incentives to stakeholders for sourcing critical raw materials for EV battery manufacturing in India. This will enable a strong EV-centric ecosystem and will be beneficial for the long-term growth of this high-potential space.

The government should also look at offsetting the increase in GST costs due to the recently-introduced BS-VI norms to stimulate market demand for ICE vehicles." - Rajeev Chaba, President & managing director, MG Motor India