Understand the economics of India and what Arun Jaitely can put on the table for cars

Cars have generally been considered a luxury product in India, they are technologically intensive and as a result generally much more expensive. Considered a status symbol, cars are still taxed considerably higher. The automotive industry has been identified as a generator of employment both directly and indirectly. A major source of income for the government, successive governments have promoted manufacturers to set up their assembly plants in India and kept taxes on cars directly imported here very high to deter mass-market car imports. The global economic downturn and domestic economic fluctuations have affected the automotive sector in India, with sales and profits taking a big hit in the past couple of years.

There is potential for the market to grow for sure. The average household income in India is rising, and more people have dispensable income to spend on luxuries like cars. Rising input costs along with inflation and the resultant measures taken by the Reserve Bank of India have forced the industry to increase car prices, reduce research and development spending and reduce their forecasts for the future, which is not a very good scenario for everyone.

There is hope though.

While campaigning for the general elections, the NDA alliance had promised more focus on improving the industrial environment in India which would lead to prosperity for everyone. This includes making it easier for companies to operate in the country, incentives for global players to invest in setting up local manufacturing units, increasing focus on improving the support systems which help industries prosper etc. While the interim budget presented late in July 2014 removed some of the incentives given to the automotive industry, specifically via the reduction of excise duty on cars in various segments, was a bit of dampener the lowering of fuel-costs and the easing of inflation has brought back some rigour in the market. The change in tax slabs and higher personal tax savings has prompted customers to spend more, though they are cautious, and this is good news for the auto industry.

The 2015-16 Union Budget is expected to offer a fair bit of incentive for the automotive industry. While corporate taxation will be made simpler with the introduction of the Goods and Services Tax, lower direct taxes from low- and mid-income citizens will increase dispensable income. The rollback of excise duty cuts on cars has hit the segment hard, it was one of the few incentives which kept the industry rolling in spite of high costs, it is expected that the new government will re-introduce them. Encouraging higher investments in India, will increase local manufacturing and R&D facilities which in turn will increase employment opportunities and further help develop the nation. The government is expected to focus on improving infrastructure necessary to support the growth of industries in India; better road-connectivity will also spur buyers. Allowing non-banking finance businesses has also opened up another venue for automakers to get funds. A push to improve intra-city transport solutions will be sweet music for CV manufacturers. It is expected that the government will announce more incentives for eco-friendly cars and also lay down a roadmap for setting up necessary infrastructure to support such vehicles.

Source : CarDekho