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Budget 2021: Auto sector's expectations from new budget

Vivek Dubey     February 1, 2021

Amid the prolonged economic slowdown, COVID-19 pandemic and plenty of job losses, Union Budget 2021 is expected to introduce multiple demand boosters to revive the country's economic growth.

Budget 2020 offered limited benefits to the automotive sector and encouraged localisation. However, soon after the announcement, India along with the world was hit by the coronavirus (COVID-19) pandemic.

The announcement of nationwide lockdown before the start of the current financial year, followed by poor consumer sentiments, affected the automotive industry to a large extent. Because of the current situation, the auto sector is expecting relief from FM Sitharaman in the form of Union Budget 2021-22.

Federation of Automobile Dealers Associations (FADA) has put forth a set of pre-Budget recommendations to help the auto sector in the country and said that the Budget 2021 should be focussed on incentives rather than strict mandates.

Benefits of claiming depreciation on vehicles

FADA has asked the government to allow taxpayers to gain benefits from claiming depreciation on vehicles, which is likely to encourage individuals in filing IT returns and promote growth in GST collection.

The federation also suggested that there should be an extended depreciation period for corporates. The increase in depreciation rate for all types of vehicles, which was valid till March 31, 2020, should be extended for FY21, to further boost the demand, suggests the auto industry body.

Reduce corporate tax for proprietary and partnership firms

The government, last year, reduced corporate tax for private companies with a turnover of up to Rs 400 crore to 25 per cent. FADA believes that the benefit should be extended to all proprietary and partnership firms as well, as most traders in the auto dealership community fall in this category.

Incentive for vehicle scrappage policy

Centre has recently approved a proposal to levy a "Green Tax" on old vehicles that are considered polluting to the environment. As part of the proposal, transport vehicles older than 8 years could be charged a tax at the rate of 10-25 per cent of road tax at the time of renewal of fitness certificate. However, a broader scrappage policy for commercial vehicles is awaited and is likely to be announced during this year's Budget.

Major Indian car manufacturers are seeking a reduction in registration charges and road taxes. Additionally, lucrative financial plans and schemes would further boost sales. The government also needs to introduce new schemes to promote electronics and semi-conductor manufacturing to attract foreign investment.

Expectations of EV industry

India's rising energy import bill, growing consciousness towards environment protection and the quest for an alternative, clean energy is creating the right push for the electric vehicles in India. In 2019-20, the EV sales in India stood at 3.8 lakh units with electric two-wheelers emerging as the biggest seller in the entire segment.

The central government's recent move to extend the production linked incentives (PLI) scheme to the automobile sector including for manufacturing of Advanced Chemistry Cells (ACC) is encouraging and will boost local manufacturing.

However, it is also important to have a view on the aggregate domestic demand by further incentivising consumption of EVs and strengthen its ecosystem in India. With this move, the EV start-ups would be likely to find domestic and global investments that propel their growth.

The industry, however, is still at the beginning stage and requires much more policy support. Budget 2021 may provide an opportunity for the government to announce some additional measures to aid the industry's growth.

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