The $ 93 billion Indian Automotive Industry that currently contributes 7.1% to India’s GDP aims to contribute over 12% by 2026. The Automotive Industry has invested around $35 billion in India in the last decade. The Automobile Mission Plan 2016 – 2026 aiming to make India among the top three automobile manufacturing centers in the world, expects the industry to be worth $300 billion by 2026. The industry is focusing on promoting safe, efficient and environment friendly automobiles.
The Automotive Industry was affected by the cash crunch post the recent demonetization of INR 500 and INR 1000 notes where the vehicle sales declined by 18.66% in December’2016 but the long term outlook of the industry remains positive. The cumulative year-on-year domestic automotive sales growth moderates to 9.42 % as per the latest statistics released by Society of Indian Automobile Manufacturers (SIAM). Valuations of Automotive stocks have come down post demonetization, making them more attractive for investment. In 2017, the Automotive Industry is expected to grow 6-7%.
The industry is hoping the Union Budget 2017-18 will boost consumer sentiment and get the sales back on track. Vishnu Mathur, Director General, SIAM said that they have requested for the FAME scheme which is to be defunct from 31 March 2017, to be extended further for a period of five years. Faster Adoption and Manufacturing of Hybrid and Electric vehicles in India (FAME India) was launched by the Government in 2015 to promote eco-friendly vehicles with incentives on electric and hybrid vehicles. The industry is expecting the coming budget to boost in hand money of consumer by reduction in personal income-tax rates and other tax incentives which may normalize the demand for automobiles. Some other areas that the industry is hoping to get concrete incentives for is fleet modernization, electric vehicles, use of alternative fuel and introducing laws for vehicle scrappage. Electric vehicles are currently largely imported and thus, the industry also seeks duty exemption on all parts used in the manufacturing of such vehicles.
The expected implementation of GST in July 2017 will rationalize the tax structure. Four tax slabs of 5 %, 12 %, 18 % and 28 % tax rates have been decided under GST for the Automotive Industry. The industry is still seeking to reduce this to two slabs proposing a base rate for small cars and two-wheelers and additional 8% for larger cars. The current excise duty on hybrid vehicles is 12.5% and on electric vehicles is 6% as compared to 30%, 27%, 24% and 12.5% on vehicles with conventional fuel. With the GST implementation round the corner, the industry is not expecting major changes in tax rates in the upcoming Union Budget, but is positively hoping the GST regime to have subsidies or reduced duties for environment-friendly automobiles.
The long talked about safety norms in India is also soon to come into force. New vehicle models launched post October 1, 2017 will have to be certified in crash tests, whereas existing models have to do so by October 1, 2019. Anti-lock braking systems and Airbags too will be made compulsory in India and that will come into force by 1st October 2020. To check toxic emissions from heavy diesel vehicles the Supreme Court has mandated all vehicles manufactured from April 1, 2017, should be BS-IV compliant (Bharat Stage IV emission standards) and no BS-III vehicles could be sold post this. However, SIAM continues to reasons that if BS III vehicles manufactured before the said date cannot be sold then companies would incur losses due to unsold inventories.
With the deadline of implementation of new technology as per the new emission and safety norms in April 2017 and the increasing focus on developing eco-friendly automobiles, R&D in the sector is under huge pressure to meet the changing landscape. In this time auto component manufactures have to make huge investments to R&D and so are demanding for an increase of weighted deduction incentive on R&D in the sector back to 200% from 150% in the upcoming Union Budget.
The Indian Automotive Industry being instrumental in shaping the country’s economy is on high focus. This industry is a contributor of 49% of the nations’ manufacturing GDP, a major FDI earner and employment generator. According to Kenichi Ayukawa, MD & CEO, Maruti Suzuki India, the fast growing Automotive Industry will generate approx. 65 million additional jobs by 2026 compared to the current 32 million people employed directly or indirectly. Presence of global automotive manufacturers certainly strengthens the sector’s ecosystem in India. The Government will push for stricter emission, safety norms and environment-friendly vehicles and the industry is also looking forward to policy reforms and incentives for eco-friendly vehicles.
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