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The automobile industry has been taking steps to reduce air pollution through measures such as the introduction of higher BS VI fuel emission norms from April 1, 2020, and adoption of electric vehicles.
In this context, the Budget has encouraged ‘Make in India’ for critical components in BS VI engines by hiking the customs duty on these parts. Thus, basic customs duty (BCD) for catalytic converters, which are used in BS VI engines, is now 15 per cent against 10 per cent earlier.
BCD for components used in the manufacture of catalytic converters such as certain ceramic parts and metal parts/ solutions/ compounds has been raised to up to 10 per cent from 5 per cent. BCD for fully-built (CBU) completely knocked down (CKD) and semi-knocked down (SKD) electric vehicles (EVs) across segments such as buses, trucks, bikes, cars and three-wheelers, has also been increased by up to 15 percentage points.
The background
While BS IV-compliant fuel, which is currently in use, has 50 parts per million (ppm) of sulphur, BS VI stipulates a low 10 ppm. Under BS VI, particulate matter emission for diesel cars and nitrogen oxide levels are expected to be substantially lower than in BS IV. To do this, BS VI engines require catalytic converters.
Higher import duties for such parts will encourage localisation and, thereby, bring down prices for customers. Currently, certain parts, including precious metals for BS VI engines, are imported by many players. However listed home-grown companies such as Mahindra & Mahindra (M&M) and Tata Motors have higher levels of localisation for BS VI engines. They will benefit from this move as imports for others could now become costlier.
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TVS, Bajaj plug into the new narrativeIndia is focusing on local EV production through Phase II of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme, which provides demand incentives for EV purchases from April 1, 2019. Since the cost of EVs tends to be high, demand incentives ranging from ₹20,000 per vehicle for buyers of e-two-wheelers to ₹50 lakh per vehicle for e-bus buyers over a period of three fiscal years (initially), are being provided to bring down the end-price for customers.
EVs of Indian listed players such as Bajaj Auto, TVS, M&M, Tata Motors that are manufactured in India will become relatively attractive in comparison with CBU/CKD/SKD models such as the Kona (Hyundai) and ZS (MG Motors). Bajaj and TVS recently showcased their EVs – Chetak and iQube. Tata Motors, too, has come out with the Nexon EV. M&M will introduce the e-KUV100 and an XUV 500 EV. Ashok Leyland is also developing e-buses.
The verdict
The economic downturn has seen new vehicle sales plunge 16 per cent year-on-year in April-December 2019. In this light, announcements such as a recommendation to the GST Council to selectively reduce GST rates on automobiles was expected. But there are no big bang measures to revive the auto sector.
Had the widely expected scrappage policy for commercial vehicles come out, it would have addressed the twin problems of pollution due to use of vehicles with outdated emission systems as well as the slump in truck sales now. Like in previous years, only small incremental benefits have been rolled out.
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