Union Pre – budget (2018-19) expectations from automobile sector

Pre Budget expectations precised in the automobile sector by Sumit Sawhney, Country CEO and Managing Director, Renault India Operations.

As the time changes every single second, every sector is witnessing the big transitions, Sumit Sawhney while expressing an opinion, said – I am looking forward to positive policy announcements and implementation that will set a good tone for the industry’s development agenda for the next year, contributing to a better economy, which include –

Corporate and Income tax reduction: The upcoming Union Budget should bring down the taxes – both income tax as well as corporate tax, to give a boost to consumption and revive investment.  Finance Minister Arun Jaitley in his 2015-16 Budget had promised to reduce the corporate tax rate to 25 per cent over the next four years. A corporate rate tax cut from the present 30% to 27%-28% would help the Indian industry.

Higher budgetary allocation for rural economy: The Union Budget should provide a major thrust on rural economy and the infrastructure spend. The focus of the government on rural development and farmer welfare would have positive rub-off effect on tractors, two-wheeler sector and entry-level passenger vehicle segment, which derives almost one-third of its demand from rural markets.

Adequate focus on job creation: Apart from focus on rural economy and infrastructure development, key areas of job creation in the Manufacturing and Service Sectors, should be focused upon for an inclusive growth plan.

Simplify existing GST rate structure for automobile sector: After the roll-out of the revolutionary GST, the Government needs to have a simplified GST structure with not more than 2 rates – a merit rate for small cars and two wheelers, and a standard rate for most of the other vehicle categories. This will make the taxation regime less complex and will certainly help boost the demand for automobiles.

Policy, Roadmap & Incentives for Electric vehicles: The government has to put in place a clear policy, time frame and get the pre-requisite infrastructure ready to enable automobile OEMs prepare for the proposed switchover to electric vehicles. While it is imperative for the Government to create a conducive policy framework for adoption of EVs, it is equally important for the OEMs to work closely with the suppliers to build the relevant ecosystem. There should definitely be support from the Government for CBUs in the EV segment, and a long-term R&D policy, as well as necessary training and skill enhancement initiatives to support the evolution of electric vehicles in India.

Incentives for Vehicle Scrappage policy: Another key point that the industry is expecting to be addressed is the announcement of a vehicle scrappage policy – the proposed ‘Voluntary Vehicle Fleet Modernisation Plan’, which will keep older cars off the roads. An appropriately structured incentive scheme for scrappage of old cars (which invariably are more environment polluting) can be a game-changer for the industry. We have to bring newer technological cars that are more environmental friendly and fuel-efficient because India still is dependent on forex for oil import. Successful implementation of this will not only benefit the environment, but will also reduce fuel consumption and infuse further demand for greener and efficient vehicles.

Higher allocation for R&D or restoration of weighted deduction of 200 per cent on R&D expenditure: With significant changes in emission and safety regulations, it is imperative for the industry to enhance their R&D expenditure. In addition, the Govt is planning full electrification of existing vehicles. R&D spends on new cars, EV designs for cars, bio-fuels like ethanol and electric powertrain will increase. It is therefore imperative that the earlier weighted deduction of 200 per cent on R&D expenditure, that was brought down to 150%, is restored.

Improving the competitiveness of Indian manufacturing:  The best way the government can contribute to enhance the competitiveness of Indian manufacturing is to provide good infrastructure that calls for a massive investment in logistics, warehousing, financial system for SMEs. Public investment in infrastructure must, therefore, be supplemented by public-private partnership (PPP) wherever possible. Clear targets could be set for the mix of public sector and PPP investments envisaged in each sector.

Besides, cost of funds and utility costs needs to come down in India, for better global competitiveness in the manufacturing sector. In fact, it is the need of the hour in order to remain competitive in a world where tax rates are coming down.

Boosting of exports: To drive exports, emphasis will need to be on increasing FTAs and investment in port infrastructure, with emphasis on creation of coastal economic zones covering multiple states, ports and special economic zones with a uniform policy.

Several industries are not operating at optimum capacity utilisation resulting in increased idle capacity. Together with offering tax concessions, there should be positive policy intervention to ensure optimised capacity utilisation, with focus on domestic and export markets.