Budget 2020 disappoints domestic automobile industry

Budget 2020 disappoints domestic automobile industry

The industry has been in the midst of a protracted slowdown as consumers at large, faced with rising unemployment and an unsure future, have stopped spending

With no announcement of a vehicle scrappage policy nor any guideline on a potential reduction in GST for cars and two wheelers, the union budget 2020 has ended up disappointing the domestic automobile industry in a big way.

The sector that has grabbed headlines for much of the last year as the benchmark of the slowdown in the economy was expecting concrete steps to either spur a revival on a sectoral basis or boost consumption in the economy at large.

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"We were looking forward to some direct benefits in the budget, which could have helped in reviving demand in the context of the current slowdown and huge investments made by the Industry for transition to BS-6 and from that aspect, the Budget speech was not what we were expecting," said Rajan Wadhera, President, Society of Indian Automobile Manufacturers (SIAM). "We had made specific recommendations on steps that could revive demand like an incentive based vehicle scrappage scheme, budget allocation for diesel buses procurement by STUs (state transport undertakings) and zero customs duty for lithium ion batteries. These don't seem to have been considered."

The industry has been in the midst of a protracted slowdown as consumers at large, faced with rising unemployment and an unsure future, have stopped spending. Passenger vehicle sales fell 13 percent in 2019, the worst in over two decades. Two wheeler sales also dropped by 14.2 percent and sale of trucks and buses, considered a barometer of the overall economy, were down another 15 percent. Sales are also projected to be flat in fiscal 2021.

"The two big misses from automotive perspective were no announcements regarding GST reduction especially to offset the increase in prices due to BSVI vehicles," said Rajeev Singh, Partner, Deloitte India. "The industry was also expecting announcement around the scrappage policy for not only boosting demand of new vehicles but also ensure the old polluting vehicles are pulled out of transportation system resulting in cleaner air."

"It is an inclusive budget but lacks immediate demand boosters. Its focus on agriculture, irrigation and rural development  will have a rub off effect on rural demand in the next 3-4 months if all the measures are actioned immediately and will give a fillip to rural auto demand, especially two wheelers, tractors & small CV's," said Ashish Harsharaj Kale, president, Federation of Automotive Dealers Association. "It was disappointing that as part of auto ecosystem, no direct benefits for the automobile Industry was announced. A budget allocation for an attractive incentive based scrappage policy would have been a demand booster for commercial vehicles and also a positive for cleaner environment and road safety. Even though GST is not a part of budget, an indication of rationalisation of GST rates in automobiles would have also brought much respite for the industry which is stumbling under extensive stress for more than a year now."

In order to boost manufacturing within the country and expand its flagship Make In India programme, the budget did tamper with import duties on a host of electric vehicle components. Duty on import of completely built bus and trucks was hiked from 25 to 40 percent, on semi knocked down units of bus, trucks and two wheelers from 15 to 25 percent and on passenger vehicles and three wheelers from 15 to 30 percent and on completely knocked down units of PVs, two and three wheeler, bus and trucks from 10 to 15 percent.

Manufacturers however said it was too early to curb import of EVs in the country given the lack of component manufacturing here.

"We feel that the customs duty hike on EVs assembled in India from 10 to 15 percent is a bit harsh, as this may impact the nascent category which was beginning to expand off late," says Rajeev Chaba, President & Managing, MG Motor India.

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