| Budget Measures |
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Interest rates for all administered instruments have been lowered by 50 basis points.
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The finance ministry has de-reserved 50 items for select auto component that fall under the small-scale sector.
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Peak customs duty has been slashed from 35% to 30%.
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Petrol and diesel prices have been reduced by Rs 0.50 per litre and Rs 1 per litre respectively.
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The Finance Minister has proposed a 5% security surcharge on income tax. Dividends have been subjected to tax at the receivers end. Also, rebate under Section 88 has been reduced to 10% for individuals who fall under the income levels of Rs 150,000 to Rs 500,000. Rebate has been removed for individuals whose income is above Rs 500,000.
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Special Excise Duty (SED) of 16% retained on passenger cars, Multi-Utility Vehicles (MUVs) and tyres.
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A Cenvat of 16% imposed on CNG and LPG conversion kits.
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| Budget Impact |
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One of the key positives for the auto sector is the reduction in petrol and diesel prices. As a result, both commercial vehicle and passenger car demand could go up.
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Lowering of interest rates could subsequently result in cheaper finance for consumers. This could benefit auto manufacturers as demand could rise.
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The auto component sector had recommended for customs duty to be lowered on select base materials, which are required for the manufacture of auto catalyst, from 35% to 5%. Though the reduction in customs duty is lower, this could benefit auto companies, as raw material cost would fall. However, this could also result in higher imports that could have a material impact on the auto component sector, which is reeling under slowdown in recent years.
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The Finance Minister’s moves on the direct tax front have come as a big surprise to many. This could affect auto demand in the coming year.
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While the auto sector have been lobbying for lowering excise duty on CNG based vehicles and LPG kits, the imposition of Cenvat will increase cost of such vehicles. The manufacturers might not be able to raise prices commensurately and consequently margins might be pressurised.
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Tyre manufacturers will also benefit as a result of lowering of customs duty. Carbon black prices, one of the key raw materials (accounts for almost 50% of raw material cost), would come down as a result of reduction in customs duty. But at the same time, tyre imports could also rise.
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Industry wish list
Mr. R. L. Ravichandran, Vice President (Business Development and Marketing, Bajaj Auto Limited
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There are few things to watch out during budget. One major thing to watch for is excise duty. Last year, the Finance Minister did a rationalisation of excise duty. I feel it will remain as it is. The other major factor that could affect our industry is a possible rise in petrol and diesel prices. Today it does not seem to be so. Third thing would be a rise in level of personal income tax. Since our industry is primarily focused on huge middle-income group, the rise in tax levels could have a negative impact.
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I am expecting the budget to be favorable for increasing the disposable income at the hands of the middle class. I am actually looking for some good positive sops there. I expect that there will be some definite incentives for higher savings by people because there is more money in current account and less in savings account.
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From the overall economy point of view, I think our deficits are a cause of concern. I think there should be a larger focus on investments and generating funds for infrastructure development. I feel that national level infrastructure on roads and rails are very critical for any economy.
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A very practical approach to "Environment Protection" would be to provide "zero" duty on imports of components for manufacturing "zero" emission vehicles in India and a very tempting offer to manufacturers for investments related to mass production of 'commercial vehicles with clean fuel'.
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Key Positives |
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Since the liberalisation of the early 90's, the automobile sector has grown tremendously in terms of market size and production capacities.
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As interest rates across the board signal a lower interest rate regime, financing costs of vehicles has reduced dramatically. This is likely to increase demand for automobiles in future.
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The government has placed renewed thrust on infrastructure development. This augurs well especially for the commercial vehicle sector. An ageing CV fleet also could result in higher demand in the coming years.
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The Delhi government has introduced measures to ban vehicles that are over 15 years old to ply on the roads to control pollution levels. Similar measures from other state governments could stimulate demand as old vehicles are taken off the roads.
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Higher agricultural output is expected to result in higher auto demand in the current fiscal.
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Key Negatives |
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Lack of investments and slower progress of reforms has been affecting business confidence. The fiscal state of the economy also is a cause of concern.
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With India coming under the WTO purview, competition is expected to rise multifold. Indian companies also have to contend with imports in the future. Already a number of companies are introducing vehicles in the CKD route.
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Higher customs duty on select raw materials has been affecting profit margins of domestic auto majors.
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