Incentives on scrapping outdated automobiles and changing them with revised emission norms compliant automobiles will catalyse automotive manufacturing and gross sales.
The Indian vehicle business has travelled a protracted street to emerge as one of many largest contributors to the manufacturing sector. However, the final two fiscal years have been tough, creating a big dent within the in any other case regular double-digit development seen by the final decade.
According to the Society for Indian Automobile Manufacturers (SIAM), the sector witnessed de-development of 14.73 p.c from April to March 2020. Hopes of revival have been additional hit by low demand and disruptions attributable to the COVID-19 pandemic.
The vehicle business’s success is important for India’s ambition of becoming a member of the $5 trillion economies’ membership by 2024-25. The Automotive Mission Plan 2016-26 targets a 3-fold development for the car sector and expects it to contribute over 12 p.c of India’s GDP. Hence, the federal government’s assist for the struggling vehicle sector is essential for its sturdy comeback.
The business expects the 2021 Budget to ship a a lot-wanted coverage framework that stimulates new investments within the sector. This turns into extra important on condition that the sector is on the point of migrating its core product, i.e., inner flamable engine to an electrical motor supported by lithium-ion batteries. This creates extra challenges, market uncertainties, and there’s a need for substantial investments in R&D and manufacturing facilities.
Electric Vehicles, incentives for new investments
As per the Phased Manufacturing Program (PMP) for home manufacturing of electrical automobiles, Basic Customs Duty (‘BCD’) charges on Semi Knocked Down (SKD) and Completely Knocked Down (CKD) kits of electrical automobiles have been enhanced from April 2020. Further, BCD charges on battery packs, lithium-ion cells, charger, electrical motor, energy management unit and different important elements of electrical automobiles are proposed to be elevated from April 2021.
The current timelines below PMP needs to be deferred because the EV market in India remains to be at a nascent stage. The automakers, based mostly on market response, will need time earlier than they resolve to set up full-blown EV manufacturing facilities in India. Further, the BCD price on import of fully built-up items of EVs might also be briefly decreased from the present price of 60 p.c/100 p.c (relying upon CIF worth) to assist automakers take a look at the Indian market with out doubling up their import prices due to duties.
The just lately introduced Production Linked Incentives (‘PLI’) scheme promising incentives of over Rs 18,100 crore for indigenous manufacture of superior chemistry cell batteries (Li-Ion battery) and one other Rs 57,000 for vehicle and auto elements, is encouraging. The authorities ought to shortly implement the schemes with adequate window for buyers to assess and submit their purposes.
The proposed PLI schemes, current at a decrease bracket of 5 p.c GST price and additional alignment of Customs responsibility charges on import of EV elements/sub-assemblies will ship out a robust message globally that India is prepared to
function a dependable manufacturing base for EVs.
Concessions below earnings tax
There is an pressing need to increase shopper’s vehicle buying energy, which has gone downhill within the final two fiscals. While restricted fiscal room can act as an obstacle to lowering the Income-Tax charges, particular tax deductions for curiosity on mortgage for automobiles, related to the deduction for electrical automobiles, could also be thought-about. Further, the present 15 p.c depreciation price for motor automobiles could also be revised to 25 p.c or 30 p.c.
Huge investments are wanted by the car sector in RD. A weighted deduction could also be allowed for the expenditure on R&D up to 200 p.c. Similarly, the liberation of threshold limits and circumstances for claiming further worker value deduction may also assist scale back the general value of producing automobiles.
Measures to increase shopper demand
GST charges on inner flamable engine-based mostly automobiles proceed to the best and go up to 50 p.c (28 p.c base GST and 22 p.c cess) for SUVs and luxurious segments. The gross sales in these segments have taken a extreme toll, and there’s a need for quick assist to stop additional harm. GST charges could also be decreased for these segments, if not everlasting then briefly, to assist increase demand and assist their survival.
The scrappage coverage for vehicles is lengthy-awaited by the business. Incentives on scrapping outdated automobiles and changing them with revised emission norms compliant automobiles will catalyse automotive manufacturing and gross sales.
Industry gears up for Budget
The 2021 Budget could possibly be a recreation-changer and well timed for the Indian vehicle business. The general outlook could be very optimistic. All eyes are set on how the federal government will ship the measures to improve recent investments into the sector and in addition to assist shoppers contemplating shopping for their very own automobiles.
Saurabh Kanchan is Partner with Deloitte Haskins and Sells LLP and Sheena Sareen is Senior Manager.
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