Budget Wishlist: Automobile Sector

KEY DEVELOPMENTS

• Emission & safety: The regulation on emission and safety is likely to have an impact on the sector in the immediate to long term. A clear regulation with consensus of all stakeholders will be key.
   
• Transformation: The auto industry is going through a transformation. In the future, vehicles will not only provide mobility but also act as connected devices. Changing customer preferences will have an impact.
   
• Oil prices: Global oil prices have dropped significantly - to a 10-year low in January (Brent at $34.47 a barrel). The immediate impact is positive, but this trend poses as a challenge for alternative fuel vehicles in India (CNG and EVs) in the long term.

• Economic growth: Though growth is slowly picking up and inflation is under control, rural economy has not picked up, hitting automobile demand.
   
• Slowdown in China: China has a huge production capacity, so there might be a lot of exports to countries like India. Appropriate measures like higher Customs duty will have to be imposed to reduce imports and give a level playing field to the Indian component industry.

BUSY ROADS



Growth in vehicle production over the years (% Y-o-Y)



KEY ISSUES

• Regulatory uncertainty: Regulatory changes like a ban on diesel vehicles in NCR are not good for the auto sector. A clear regulatory road map is required.
   
• High taxes: Vehicles were treated as luxury goods in India and taxed at a high rate in the past. That is no longer the case. A moderation in taxes is required, especially for environmental-friendly vehicles.
   
• Duty structure: Some segments of the industry are facing issue of an inverted duty structure. This should be resolved by addressing the cashflow problems faced by auto makers.
   
• Road map for GST: The proposed goods & services tax is to subsume all indirect taxes. Used vehicles should also be covered by the tax.
   
• Rural demand: With the agrarian economy facing a second year of drought, rural wages are unlikely to rise anytime soon, so the rural consumption cycle could remain under pressure in the near term. The Budget should give a push to generate employment and demand.

EXPERT VIEW: Abdul Majeed

PwC expert answers Business Standard readers' questions on what to expect from the Budget

ADVITYAA: Does the auto sector need separate Budget allocation for R&D, aimed at tech and energy innovation that can be used to incentivise Make in India initiatives?

Technological and energy-efficiency-based innovations require huge investments. Support will be required from the government. If incentives are provided, more innovation will happen, and this will help put India on the global innovation map. The government should engage with stakeholders like nodal automotive associations and provide the best possible incentives to encourage auto players to increase their efforts in the area. In the coming Budget, if environment-friendly vehicles are provided additional support by way of tax reduction, it will encourage and act as an incentive for people to buy these vehicles.

RAJAT: With the government's push to BS-VI norms, what incentives can be provided in Budget 2016 for smooth adoption of these norms?

Most oil firms are owned by the government, which is committed to supporting the oil sector as long as the fuel is BS-VI-compliant. I expect some allocation in the Budget towards this.

RUGUS: An invention is required to tweak vehicles for less pollution. What do you see the government doing for this in the Budget?

I expect the Budget to include incentives to replace old vehicles. In addition, more incentives can be provided for environment-friendly vehicles.

Abdul Majeed
Partner, Price Waterhouse, and auto expert

Y K Koo

CEO BYTE: Y K Koo
"We need a scrappage system to remove old vehicles from the roads, with lower emission norms in place. That will address the air quality in the country. Also, we look forward to a road map for implementation of goods & services tax to simplify operations"

Y K Koo
MD & CEO, Hyundai Motor India