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Budget 2020 | Reduction in GST tops demands of auto industry

Manufacturers have suggested a slew of measures to the Finance Minister with a hope to see a turnaround in coming months

January 21, 2020 / 05:02 PM IST

Reduction in the Goods & Services Tax (GST) tops the budget wish-list of the beleaguered automobile industry. Last year, the industry recorded its worst-ever sales decline in two decades as a variety of factors spooked the retail buyer despite manufacturers offering never-seen-before discounts.

Multiple hikes in insurance premiums, safety-related regulatory changes, easing axle load norms, fuel price hikes, lending crisis in the NBFC space, uncertainty over the future of BS-IV vehicles and tighter lending norms by banks are some of the reasons why auto demand has remained subdued for several quarters.

Cost of cars is estimated to have risen 20 percent in the past 12 months due to mandatory additions like airbag, reverse sensors, ABS, crash conformity standards and upgradation to Bharat Stage VI emission standards.

There was a 14 percent decline in automotive volumes in 2019 to 23.07 million units, data supplied by the Society of Indian Automobile Manufacturers (SIAM) revealed.

After BS-VI implementation from April 1, the industry expects retail demand to remain dull for at least two quarters.

Manufacturers have thus suggested a slew of measures to the Finance Minister Nirmala Sitharaman with a hope to see a turnaround in coming months.

Reduction in GSTA reduction in GST tops the list of those demands. The lobby body wants the government to temporarily pare down the GST rate to 18 percent from the present 28 percent.

This, the industry hopes, will negate the incessant vehicle price hike (including that due to BS-VI implementation) and make them more affordable. If there is reduction in GST, it will boost the government’s tax revenue as a higher retail demand will generate an additional tax income. On the other hand, if GST is not reduced, then falling retail sales will translate in lower GST revenue.

Scrappage policyIndian roads are home to several outdated and polluting trucks and buses, which have reached the end of their serviceable lives. With very little or no restriction laid on them, such vehicles are chief polluters and pose a serious risk of life because of poor maintenance.

The industry has been hoping that the government will steadfastly rollout the scrappage policy, which has been in the making for several years. The policy will not only incentivise truck and bus owners, but makes it mandatory to give up vehicles that are older than the stipulated date.

Extension of EV benefits to private buyersUnder the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) scheme, the Centre provides monetary incentives to buyers of electric and hybrid vehicles. The government has committed Rs 10,000 crore for the FAME II scheme.

However, private car buyers cannot benefit from the scheme, which provides incentives of around Rs 1.5 lakh per vehicle. Only those electric and hybrid car buyers can benefit from the scheme who put up their vehicles for commercial use.

Incentives for manufacturing EV batteriesThe industry is seeking relief from customs duty on lithium-ion cells import, which it feels is necessary to develop the EV ecosystem in India, especially battery manufacturing.

The government has been looking to incentivise battery making in India and has earmarked subsidy for the same to promote clean technology. However, these plans have remained largely on paper despite being in the rounds for more than a year.

Reduction in GST on hybridsPost implementation of GST, some manufacturers expressed their displeasure after the government placed hybrids in the same bracket as large cars and SUVs. At 43 percent, taxes on hybrids are very steep compared to EVs, which carry a GST of 5 percent.

The industry hopes that either GST on hybrids be reduced to 18 percent from 28 percent or some reduction be made on the 15 percent cess. The steep pricing of hybrids has forced carmakers to go only after electric vehicle technology, even as several governments across the world believe that hybrids are the perfect bridge between petrol/diesel cars and electric cars.

Swaraj Baggonkar
Swaraj Baggonkar
first published: Jan 20, 2020 12:45 pm