Budget 2021

Auto sector laments lack of measures to revive demand

Nandana James Mumbai | Updated on February 01, 2020

Auto companies feel a little let down by the Budget   -  REUTERS

Srinivas Kuna, who owns an automotive component manufacturing company in Bengaluru, has been reeling under myriad setbacks amid the prolonged slowdown in the sector. He has been able to pay his factory workers only 40 per cent of their salaries since November 2019, as his company is working at half its earlier capacity now. A crippling shortage of funds, dwindling orders, and an inability to procure new businesses are some other impediments, he said.

“Banks have almost shut their doors at us. They say your performance is not good; definitely everyone’s performance is not good now,” he lamented. Better financing options are something he hoped the Budget would bring about. A more uniform GST system for the auto component industry, which currently has more than one rate on different components, was also something that he was vying for.

The Budget announced measures to boost local manufacturing of electric vehicles in the form of higher customs duty on semi-knocked down (SKD), completely built units (CBU) and completely knocked down (CKD) kits on various EVs, as well as a proposal to “extend handholding support – for technology upgradations, R&D, business strategy etc” in the auto components sector. However, it lacked initiatives that directly addressed the automobile industry. It also proposed an increase in custom duty on CBUs of commercial vehicles other than electric vehicles.

Struggling sector

This is even as the automobile sector is grappling with one of the worst slowdowns it has seen in decades. Kuna’s struggles, for instance, speak of a larger malaise that has afflicted the automobile sector.

Over two lakh jobs were cut across automobile dealerships in just four months, with 286 dealerships also shutting shop between January 2018 and April 2019.

“The Indian automobile industry was 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-VI and from that aspect, the Budget speech was not what we were expecting,” said Rajan Wadhera, President, Society of Indian Automobile Manufacturers.

Pawan Goenka, Managing Director, Mahindra & Mahindra, said the implementation of a scrappage policy would have helped revive demand. Taking into consideration the increase in price set to happen due to the BS-VI transition, at least this cost increase could have been made GST neutral, he said. An incentive on buying would have been welcome as well, he said. The Budget lacked measures to immediately revive demand, he added.

Sohinder Gill, Director General, Society of Manufacturers of Electric Vehicles (SMEV), said the increased customs duty on SKD, CKD and CBU models of EVs is in line with the government’s Make in India initiative, and a step towards forcing manufacturers to localise.

Players such as MG Motors and Hyundai, which are only assembling their EVs in the country, are expected to be impacted by this move.

Rajeev Chaba, President & Managing Diirector, MG Motor India, said in a statement, referring to the company’s new ZS EV model: “We feel that the customs duty hike on EVs assembled in India from 10 per cent to 15 per cent is a bit harsh, as this may impact the nascent category which was beginning to expand of late.”

Published on February 01, 2020

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