Overall, the Budget is clearly focused on Government’s guiding principles of ''perform, reform, transform'' to succeed in governance.
The Union Budget has expectedly focused on the rural, agricultural and the middle-class tax payers. This is likely to spur growth in housing sector, start-ups and electric vehicles. Following are few initiatives announced and their likely impact on the auto sector.
Increased infrastructure spending
Increased allocation Rs 100 lakh crore for infrastructure over the next five years will help bridge the Rural-Urban divide, and improve connectivity between tier 2 and tier 3 cities across the country. Successful implementation of Schemes such as Bharatmala, Sagarmala and Udaan are a testimony to this fact.
Nearly 30,000 km roads were constructed under the Pradhan Mantri Gram Sadak Yojna in the last 5 years using green material, including plastic waste. All weather road connectivity was also provided to 97 percent of habitation. Pradhan Mantri Gram Sadak Yojana Phase 3 envisages to upgrade 1.25 lakh km of road length at an estimated cost of Rs 80,250 crore. This will boost the commercial vehicles segment.
Corporate on companies with turnover of up to Rs 400 crore has been slashed to 25 percent, down from the current 30 percent. Presently, the lower tax rate is applicable on companies having a turnover of up to Rs 250 crore. This is likely to boost MSME companies in the auto sector as nearly 75 to 80 percent of the component suppliers come under this category.
Boost for Electric vehicles
The government’s decision to allow for an additional income tax deduction of Rs 1.5 lakh on interest paid on bank loans will help boost consumer demand for electric vehicles (EVs), especially for two,three and four wheelers. Another positive impact on EV manufacturing in the country is the likely decision by the GST council to the reduce tax rate on EVs from 12 percent to 5 percent.
Customs duty on certain parts of EVs has been reduced, which is likely to boost the indigenisation of EV parts (such as electric motors, motor controller / hybrid controller/ battery management system/ECU controller for xEV, battery chargers).
Initiatives to boost Local Manufacturing / Make in India
The government’s proposed investment-linked tax benefit under 35 AD of the Income Tax act on manufacturing of products like lithium batteries and solar chargers, will help global companies. Through a transparent bidding process, they will now be able to set up mega manufacturing plants in sunrise and advanced technology areas such as semiconductor fabrication, solar electric charging infrastructure and lithium storage batteries.
Skill Development and Youth Empowerment
Demographic trends world-wide show that major economies will face severe labour shortages in the future . The decision by the government to focus on imparting new-age skills in areas like artificial intelligence, Internet of Things, big data, 3-D printing, virtual reality and robotics will equip our youth to take up high-paying jobs and develop skill-sets needed abroad (including language training).
This will enable about 10 million youths to take up industry-relevant skill training through the Pradhan Mantri Kaushal Vikas Yojana, and help create a large pool of skilled manpower.
Contrary to expectations from the auto industry, a few decisions of the government, such as not to reduce GST on (PV, CV, 2W) from 28 percent to 18 percent or 12 percent; a special additional excise duty and road cess on petrol and diesel by Re 1 per litre, will likely impact consumer demand for next few months as the industry is already witnessing a slowdown for the last 9 months.
Overall, the Budget is clearly focused on the government’s guiding principles of ''perform, reform, transform'' to succeed in governance. While any short-term impact on the auto sector is unlikely, it provides some relief to both manufacturers and consumers in the EV ecosystem. The budget has indeed laid down a good vision for the next 10 years in addition to highlighting the government’s achievements over the last five years.
The author is Partner, Deloitte India.Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any decisions.