Union Budget 2016: Effect on Automobile Industry

The Union Budget 2016 has been announced and it seems a mixed bag for every sector including Automobiles. If we talk about the two-wheeler segment, the mass category remains almost unaffected with the new budget, while additional 1 per cent tax will be collected on the purchase of vehicles exceeding the value of Rs 10 lac. 

The budget has focused on the development of the roads, including the national highways and the rural roads alike. An investment outlay of Rs 97,000 crore in the road sector, including PMGSY allocation, has been made for 2016-17. Honorable Finance Minister also informed that as many as 85% of the projects that were stalled, have been re-initiated by the efforts of the Ministry of Road, Transport and Highways. The improved infrastructure would further help the cause of the industry.

Honda Motorcycle and Scooter India Ltd (HMSI) has also said that the development of road sector and highways will accelerate connectivity and mobility across all geographies led by rural areas, which is very positive news for overall auto industry.

The amendment to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment is a welcome move. However, the introduction of Service Tax on passenger transport will have a dampening effect.

 The industry is happy to note that a grant of 200 crores have been made to the FAME scheme and NATRiP. Moreover, the validity period of exemption granted to specified goods for the use in the manufacture of electrically operated vehicles and hybrid vehicles is being extended without time limit. This will help improve the consumer sentiment around these vehicles and promote faster adoption.

Mr. Vinod Dasari, President, Society of Indian Automobile Manufacturers (SIAM) said that the Union budget for the fiscal year 2016-17 is a mixed bag for the Indian Automobile Industry. The Union Budget aims to boost the rural economy of the country and the biggest positive in the announcements made by Hon’ble Finance Minister, Mr. Arun Jaitley, is the impetus given to the rural, agricultural and infrastructure segment. We believe that this will help boost the consumer sentiments of rural India, which had been subdued for more than a year. We believe that an uplifted consumer sentiment will give a much needed boost to the automobile industry.

 SIAM welcomes clarification regarding mode of payment of NCCD from cenvat for past period. This is something that SIAM had been suggesting for quite some time. Basic custom duty on raw material used for manufacturing of catalytic converters has been reduced from 7.5 per cent to 5 per cent. However, the basic customs duty on import of aluminium & aluminium products and zinc alloys has been increased which will impact the industry. The weighted tax deduction on R&D expense has been reduced from 200 per cent to 150 per cent from April 01, 2017 and it will further be reduced to 100 per cent from April 01, 2020. This will go against indigenous R&D in India. Moreover, reduction in tax benefit has been announced without any announcement about the corresponding reduction in corporate tax rate.

 SIAM was also expecting an announcement on fleet modernization, however, no such announcement has been made, which is disappointing.

 The additional 1 per cent tax to be collected at source on purchase of vehicles exceeding value of Rs 10 lakhs will be a deterrent. We believe this would result in the rise of prices across categories of vehicles and would hurt the industry. With the Government’s focus being rationalization and simplification of taxes, introduction of new taxes on vehicles will only dampen the spirit of the Auto sector.