Union Minister for Heavy Industries and Public Enterprises Anant Geete has assured the Automotive Industry that the Government would provide all support in developing India into a globally competitive Auto Manufacturing Nation. At a sectoral seminar held recently as part of the Make in India Week in Mumbai, he said that the Automotive Industry needs to channelize its energies and efforts on R&D and new product development.

Are these promises fulfilled by the Budget for the fiscal year 2016-2017?

Today the Indian Automotive Industry is one of the largest in the world. Most OEMs (Original Equipment Manufacturer) have manufacturing base in India. The Indian Auto Component Industry has become an attractive supplier for global markets. 31% of the small cars sold worldwide are manufactured in India.

The sector plays a significant role for the whole economy in India as its contribution to the country’s GDP is expected to increase from 7% to 12% according to the Automotive Mission plan. Regarding the Industrial and Manufacturing GDP, the Auto and Auto Components Sectors register the highest contribution with 25% and 45% respectively. Further the market volume is expected to grow from $80 billion to $270 billion by generating 65 million jobs additionally.

But still industry leaders consider it to be highly urgent to implement an environment where innovation and R&D can grow. Confident that India has the potential to become one of the top three nations in Automobile Manufacturing by 2026, they recommended to the Indian Government to create a dedicated fund in order to stimulate R&D in the Component Sector.

The detailed Automotive Mission Plan (AMP) 2016-2026 is supposed to be launched shortly by the Government.

The recently launched Budget for the fiscal year 2016 mainly concentrates on investment in rural India as well as Infrastructure development. Rs. 970 billion are provided over the next fiscal year on improving and building new roads and highways. Further the Government aims to work on the high air pollution in cities like Delhi by temporary banning of sales of large diesel cars.

For passenger cars which only run on petrol, compressed natural gas or liquefied petroleum gas, the infrastructure cess levies a 1% tax. Further it levies a 2.5% tax on small diesel cars less than 4 m in length and 4% on bigger diesel cars. The government did not impose any taxes on two- and three-wheelers, which is surprising, but will bring a rise in demand for these types of vehicles. In addition, the customs duty on commercial vehicles will increase up to 40%.

According to experts, the new taxes might have a negative impact in the short-to-mid term, as Automobile Manufacturers have to increase the price of vehicles subject to infra cess. It might not have this effect in rural areas, as there the market dynamic evolves and the purchase capacity of people in those sectors increase. Electric, hybrid, and hydrogen fuel-celled vehicles were not further taxed.

So all in all the Budget 2016 for the Automotive Industry in India caused adverse reactions, as new fiscal measures like excise duties and the introduction of Goods and Services Tax (GST) were not implemented and could have supported and accelerated the industry.

To read the latest news on the Automotive Industry in India please click Automotive Industry Newsletter.