The Union Budget 2008-09 has come as a pleasant surprise to many in the automotive industry, especially manufacturers of small cars, buses and two- and three-wheelers. Although not being directly benefited, the Indian auto component industry clearly stands to gain from the anticipated growth in volumes thanks to the tax cuts.
While auto industry leaders gave the thumbs up to Finance Minister P Chidambaram’s proposals in the Union Budget, many felt that the Budget could have been a little more accommodating.
According to Ravi Kant, president, Society of Indian Automobile Manufacturers (SIAM), “the Finance Minister has presented an encouraging Budget that seeks to give a fillip to the growth of the auto sector. It is commendable that he has greatly enhanced the outlay in the social sector and yet provided an environment for industrial growth”. He added that “the reduction of excise duties will definitely help in the revival of growth in the manufacturing sector. The auto industry also welcomes the proposal to allow 125 percent weighted average tax deduction for outsourced R&D. This will help industry to undertake more R&D and access state-of-the-art technologies and capabilities to develop advance products”.
“We really wanted to see the excise duties stable for all cars. Yes, there is a bit of disappointment that it is only for small cars. We are very pleased on the hybrid duty reduction because that is the future of the automotive industry. The Budget is encouraging due to its focus on agriculture, irrigation, education health care and power. Since it addresses some of the concerns of the industry in general, it should help fuel demand and economic growth going forward,” said Karl Slym, managing director, General Motors India.
“The industry was expecting some relief in terms of R&D spend and we have got that in this Budget. But the auto components sector itself has been ignored,” said Deep Kapuria, chairman and managing director, Hi-Tech Gears.
SIAM director general, Dilip Chenoy, said: “The Budget was on expected lines with one exception, retaining the duty for large cars. The problem is that the differential between small and large cars has increased. While the intention of the government to promote small cars is fine, we hope that at some time in the future rates for large cars would also be brought down. The big positives are reduction in duty on buses and two-wheelers, cut in excise on small cars, reduction in income taxes and incentives to farmers’.
Lumax Industries managing director D K Jain said, “Duty cuts on vehicles will lead to increase in sales volumes which in turn will help the component industry. Overall, it is a good Budget.”
Shriram Pistons president, AK Taneja said: “The reduction in import duties of aluminium scrap and steel had been a longstanding demand of the component manufacturers. All ASEAN countries and China do not impose import duty on scrap, which is the most efficient way of producing the end product. We are also glad that outsourced R&D will be eligible for weighted reduction because these days R&D is a collaborative effort. Also, the peak import duty has not been reduced from 10 percent, which is a welcome step considering that the dollar has depreciated by over 10 percent in the last 10 months.”
KK Swamy, deputy managing director, Toyota Kirloskar, said: “I must say I am a bit disappointed because bigger cars are the only manufactured goods that attract 24 percent excise. Overall, it is a good budget for the auto industry. As for hybrids, inspite of the excise reduction from 24 to 14 percent, they will still be pretty expensive considering the R&D expenditure and import content.”
Dr Wilfried Aulbur, CEO and managing director, Mercedes-Benz India, was equally disappointed on the issue of large cars. He said “the Budget is positive on buses, two-wheelers and small cars. It is also favourable when it comes to infrastructure, energy and education. But I think there has been discrimination between smaller and larger cars. We would have liked the excise duty on large cars to be brought down to 16 percent.”
Arvind Saxena, senior vice-president, Hyundai Motor India, commented: “I must thank the Finance Minister for showing concern for small cars this time. I wish he would have also looked at the concerns we have been raising on the export front. We are the number one exporter of cars from India and with the hardening of the rupee, it would have been yet another opportunity for us to look at bigger volumes."
South-side story
The Confederation of Indian Industry (CII) – Southern Region appeared to be pretty pleased with the Budget, terming it “interesting and forward looking". They welcomed measures to reduce duties, particularly the cut in CENVAT from 16 to 14 percent, which in the long run will help the manufacturing sector. According to chairman P K Mohapatra, “the Budget is a reformist one that should encourages innovation and productivity.”
B Santhanam, managing director, Saint-Gobain Glass India Ltd, said “the duty cut for small cars will generate demand and the Budget is good for automobile companies.”
Gopal Srinivasan, chairman, CII-Tamil Nadu, added that “it is an investor-friendly Budget and a good one for the automobile and ancillary industry.”
R Santhanam, managing director, Hindustan Motors, said: “The Finance Minister’s move to cut duties is indeed welcome. It will spur demand which is good for the industry. Also, the decision to reduce duty on cars, two- and three-wheelers is laudable and it is hoped that over the years taxation on cars will be on international standards. The decision to scrap import duty on steel melting and aluminium scrap will also have a significant impact on the auto industry. Steel prices have been rising sharply and burdening the auto and ancillary industry. This move would come as a major relief.”
K S Sridharan, chief financial officer, Ashok Leyland, said “the move to scrap import duty on steel melting and aluminium scrap will help the auto industry as well as the foundry industry. The cut in duty on buses and bus chassis will also encourage increased manufacture of buses domestically, most of which are currently imported.”
V Mahadevan, managing director, Ennore Foundries said: “Overall, it is a positive Budget, more so for the manufacturing sector. The move to scrap duty on steel scrap will benefit the
foundry industry, which supplies around 40 percent of its products in the form of castings to the auto industry.”
K J Rao, CFO, Ceat Tyres Ltd, said: “For the tyre industry in particular, the Budget is positive. Reduction in excise duties would facilitate higher demand for cars and hence for tyres. The cut in CENVAT from 16 to 14 percent for tyres is a welcome measure and we have decided to pass the entire two percent benefit onto our customers.”
Sreeram Srinivasan, executive director, Saint-Gobain Glass India Ltd, said “it is a very good Budget for the auto component industry. It will also be beneficial for bus manufacturers. With India aiming to be recognised as a global hub for small cars, the move to cut duties will help in a big manner.”
Clearly, the Budget has hit the right note with the captains of the automotive industry.