Union Budget 2019 | Impact On The Auto Sector

The Union Budget 2019 was presented on Friday, 5th July by first time Finance Minister Smt. Nirmala Sitharaman in the Lok Sabha at The Parliament in New Delhi. This budget brought many reforms in the banking, economy, finance, railways and MSME sector. But what has this budget to offer for the automobile industry in India?

The Indian Auto Sector is seeing a decline in sales and numbers and with the imminent arrival of the BSVI norms (Read more on BS 6 | Bharat Stage 6) and Government’s move to shift conventional mobility to all-electric. The coming years are going to be tough for the Automobile Industry.

UPDATE 27th July 2019: The GST Council has decided to reduce the GST rate on electric vehicles (EV) from 12% to 5% and 18% to 5% on EV chargers from August 1st 2019. Moreover, the GST Council has also approved an exemption from GTS on the hiring of electric buses by local authorities.

The Union Budget 2019 | Highlights that could affect the automobile sector

• Better Infrastructure

With the introduction of the 2019 Budget, Smt. Nirmala Sitharaman proposed a major investment of ₹80,250 crores for a 5 years period to upgrade around 1,25,000 kms of rural roads in India.

But why how is this relevant?

You see, as per industry estimates, the rural market in India contributes around 15-20% of automobile sales for the Indian auto sector, which majorly covers the sales of tractors, motorcycles, and heavy commercial vehicles.

• Financial Support

The Union Budget 2019 has given a sigh of relief to the Automobile sector with the government announcing an allocation of ₹70,000 for public sector banks (PSBs) to help Non-banking financial companies (NBFCs) infuse liquidity in the dependent sector and improve the credit scenario.

The announcement also included a one-time 6-month partial credit guarantee for NBFC on purchase of assets amounting of ₹1 lakh crore. Additionally,  the government has also proposed to provide ₹70,000 crore capital for PSU banks.

• Electric Vehicles | The crown jewel of the budget 2019

The announcement of the reduction of GST on electric vehicles has given a new lease of life to the struggling EV start-ups operational in India.

Moreover, the tax rebate on electric vehicle loans has revived electric vehicle mobility that has been budding in India for the past few years.

In Union Budget 2019, finance minister, Smt. Nirmala Sitharaman said,

With an aim to become a global hub for electric vehicle manufacturing, the government has already moved GST council to lower the GST rate on electric vehicles(EV) from 12% to 5%.

The provision of additional income tax deduction of up to ₹1.5 Lakh on purchase of electric vehicles would encourage potential customers to invest in electric vehicles, further boosting the e-vehicle trend in India. WIN-WIN!

The Union Budget 2019 | What are the expectations of the Automobile industry?

• Reducing GST on automobiles

The most prominent and pushed demand of the auto industry was to reduce the GST rate on automobiles from 28% to a more rational level of 18%. As per industry gurus, imposing a 28% tax on automobiles counter-productively puts it in the same category as sin goods like cigarettes and other luxury items. 

• Vehicle scrappage incentive scheme

1. The Society of Indian Automotive Manufacturers (SIAM) has been long proposing a scrappage incentive scheme, which will pull old and polluting vehicles off Indian roads.
2. Secondly, SIAM has also been demanding a hike in customs duty on imported commercial vehicles and CKD (Completely Knocked Down) commercial vehicles by 5% to 15%.
   

• The phased introduction of electric vehicles

1. The automobile sector is also hopefully looking forward to a comprehensive policy paper on the phased introduction of electric vehicles in India.
2. The NITI Aayog has recently released a particular to the Finance Ministry calling for the scrapping of all fossil fuel-based vehicles by 2030.
   

• Scrapping customs duty on Lithium-Ion cells

The electric vehicle industry in India believes that bringing down customs duty on lithium-ion (Li-ion)cells to zero would further bring down the cost of batteries and help local battery manufacturers to scale-up and contribute to the mainstream electric mobility companies.

Also Read: What is a Mild Hybrid Vehicle?