Lowering effective personal income tax rates, announcing INR 10 lakh crore in infra spending, INR 2.40 lakh crore capital outlay for railways, INR 35,000 crore for priority capital investments to achieve energy transition and net-zero, scrapping all old Government vehicles, raising agri credit target to INR 20 lakh, reducing more than 39K compliances, and reducing surcharge from 37% to 25% in the Union Budget 2023, augur well for the automotive industry's positive sentiment.
It is evident from reactions from the Automotive Component Manufacturers Association of India (ACMA), the Federation of Automobile Dealers Associations (FADA), and the Society of Indian Automobile Manufacturers, saying that the Budget will have a positive impact on India's automotive industry.
At the same time, increased focus on sustainability and decarbonisation will make the environment safer for the current and future generations. Notably, one of the key announcements made during the Budget is on the Government's aim to produce five MMT of Hydrogen by 2030. (You can read the latest developments around Budget 2023-24 here)
Sunjay J Kapur, President, ACMA, said, “The Budget is a blueprint of a digitally enabled Aatmanirbhar Bharat coupled with measures that will drive sustainable yet inclusive growth at a rapid pace. Focus on exports, manufacturing, local value addition, and encouraging green energy and mobility are steps in the right direction.”
MSMEs In Focus
The Budget also announced measures to assuage challenges faced by MSMEs due to failures of execution of contractual obligations during the pandemic. The continuation of reduced duties on copper scrap and inputs for steel will help in the availability of raw materials in the automotive sector.
An announcement for funding various Government Departments to replace old vehicles is also commended. According to Vinod Aggarwal, President, SIAM and MD & CEO, VECV, a 33% increase in capital outlay with an effective provision of INR 13.7 lakh crore will spur growth in the economy resulting in a positive impact on the auto sector.
He said, “Another appreciable feature of the Budget is putting more money in the hands of the individuals by lowering effective personal income tax rates that should increase consumption and consequently lead to more demand.”
Infra To Aid CV Growth
Additionally, the capital outlay of INR 10 lakh crore in infra spending will definitely aid CV sales, and the aim to scrap all old Government vehicles by aiding State Governments will boost all segment sales.
According to Manish Raj Singhania, the reduction in individual tax slabs will benefit the ailing entry-level 2W and PV segment, while the reduction in the highest tax surcharge from 37% to 25% will also benefit luxury vehicle sales.
He said, 'With a focus on electrification, relaxation on import duties of Lithium-ion batteries will help in price reduction of EVs, thus making it affordable for the masses. On the business front, being part of the MSME universe, the cost of credit guarantee will reduce by 1%, thus helping auto dealers in raising funds.'
The Budget has also focussed on ease of doing business by reducing more than 39K compliances and enabling entity-level Digi locker for storing and sharing documents. A 'Green Credit Programme' to promote behaviour change has also been announced as another intriguing proposal, but most companies await the fine print and anticipate that it will support the creation and uptake of EVs.
Five MMT Hydrogen By 2030
Moreover, promoting Hydrogen as a fuel for the future is another initiative, as the country has an abundance of sunshine most of the year, and the majority of the goods are transported in heavy-duty trucks that cannot run on lithium batteries efficiently.
Sohinder Gill, Director General, Society of Manufacturers of Electric Vehicles, believes that hydrogen and lithium batteries can co-exist as great clean fuels for the energy and transportation needs of the next few decades.
He said, “After passing through a difficult period of lack of good quality Made in India EV components for the last two years, the local supply chains are beginning to take shape and the increase in customs duty on SKD/CBU is therefore timely as it will further incentivise the local suppliers because of the relative price advantage.”
According to him, many parts of EV componentry, such as lithium cells, permanent magnets for electric motors, semiconductors, etc., will need to be imported. SMEV was expecting rationalisation of customs duty on such essential imports to help keep the EV prices in check. The continuation of the customs duty-free status for machinery used to produce lithium-ion batteries could result in some stabilisation in battery pricing.