Comment | Automakers bypassed in Budget, new challenge lies in wait

March has been a tough month, not just for the auto industry but all over India, manufacturers have been shutting their doors thanks to the coronavirus outbreak. With this mind, while sales in the auto industry did happen, there were some losers. To keep things in perspective, here are the top losers when it comes to cars compared to February.

Sounak Mitra

Automobile companies did not have a good beginning to the year. Rising vehicle prices, lack of vehicle financing options, weak consumer sentiment and unstable fuel prices together affected sales of passenger vehicles in January. While numbers for two-wheelers are yet to come, most passenger vehicle makers reported a decline or a flat performance.

This continues a trend that has now been visible for the past couple of years due to different reasons. It goes way back to when the aftershocks of demonetisation (November 2016) were felt. Even investor interest is down. During the past one year, the S&P BSE Auto Index fell by around 25 percent.

The worst is not over. One more big challenge is lying in wait. By April 2020, automobile companies have to meet the Bharat Stage VI emission norms, which will see car prices increase. The silver lining is that prior to the implementation of BS-VI, there is likely to be a surge in sales of BS-IV vehicles as they are likely to be cheaper than the latest BS-VI vehicles. Besides, two-wheelers will have to comply with safety norms, including Anti-lock Braking System (ABS) and Combined Braking System (CBS) by April this year. This will also increase the price of two-wheelers.

Globally, the auto industry’s focus is on electric vehicles and autonomous cars. The Modi government has high hopes that electric vehicles will account for around 30 percent of total vehicle sales. Electric vehicles constitute a small fraction at present. In 2017-18, 56,000 electric vehicles were sold compared to 3.2 million passenger cars.

But the government is yet to finalise a proper EV policy. Automakers had expected that the Interim Budget will clear clouds on EV policy but were disappointed.

The only thing mentioned was that India will lead the “transportation drive” at the forefront with electric vehicles ensuring “energy security” and reducing “import dependence” on crude from Gulf countries. But, interim finance minister Piyush Goyal did not lay out measures to support the automobile industry.

It has been pointed out by experts that proposed (Budget) sops --on rebate in income tax for people with income up to Rs 5 lakh, extension of tax deducted at source (threshold up from Rs 10,000 to Rs 40,000 on bank and post office deposits), increase in standard deduction, and proposed assured income support of Rs 6,000 a year to around 12 crore marginal farmers (with land holding of less than two hectares) – will boost consumption, especially in rural India.

While the aggregate amount is substantial, the cash in hand for individuals may prove too little even for small-ticket purchases. The only thing that looks realistic is smaller daily essential buys.

The government did take one step related to electric vehicles, on 29 January. It reduced customs duty on import of parts and components for electric vehicles to 10 to 15 percent from 15 to 30 percent earlier, but increased duty on import of batteries to 5 percent from zero earlier. Automakers will have to be happy with this for now.