Budget ignores the automotive sector

Finance minister Pranab Mukherjee’s Budget for 2009-2010 has not offered any direct benefits to the automotive industry, in terms of tax and duty cuts. However, increased spending on the road infrastructure should indirectly benefit sales of vehicles in the longer term.

The latest Budget increased allocations by 23 percent for the National Highways Authority of India (NHAI). In addition, an 87 percent jump in allocation to Rs 12,887 crore, has been made for the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) which is an important scheme to develop urban infrastructure.

Also passenger vehicles with engine capacities above 2000cc, which had an ad valorem duty of Rs 20,000 now see that reduced to Rs 15,000. Most manufacturers have already passed on this marginal benefit to customers but this is not expected to have any material impact on sales.

In addition the excise duty on petrol-engined trucks, like the Maruti Omni cargo van, has also been reduced from 20 percent to eight percent, bringing them on par with diesel trucks. The rationale was that these trucks provide a useful means of transport within cities and across short distances.

Putting his green foot forward, the finance minister has also lowered the customs duty on bio-diesel from 7.5 percent to 2.5 percent to encourage its use within industry. Bio-diesel, obtained from vegetable oils and used for blending with diesel, is currently exempt from excise duty.

Industry reactions

According to Ravi Kant, president, Society of Indian Automobile Manufacturers (SIAM), “There are several positive proposals in the Budget for 2009-10 including the increased expenditure by NHAI, enhancement of outlay of the Prime Minister’s Gram Sadak Yojana by 59 percent and further expansion of allocation to JNNURM. These would have significant positive impact on the automobile industry, in the medium to long term.” He added, “In recent times, the rural market has been playing an important role for the auto sector and measures aimed at enhancing the income levels in rural areas including an increase in allocation to NREGA will have a positive impact on automobile industry.” Kant also welcomed the finance minister’s announcement stating that Goods & Services Tax (GST) would be in place from April 1, 2010. “This is an important announcement for stability and predictability in the taxation structure. However, absence of any mention about reduction of Central Sales Tax (CST) from two to one percent as per the roadmap, is a cause of concern,” he added.

SIAM also felt that the announcement of the formation of a committee to review petrol and diesel pricing is a positive move. Kant felt that while these proposals will have a positive impact on the automobile industry, these will be visible in the medium term and long term rather than having any immediate impact, more so for the commercial vehicle segment, which is going through severe downturn. He added that “a specific package for this segment is required.”

According to J S Chopra, president, Automotive Component Manufacturers Association of India (ACMA), the Budget would not have any direct beneficial impact on the auto component industry. Welcoming the thrust on infrastructure development, Chopra said that the increase in outlays for NHAI and JNNURM would fuel growth in the automotive industry in the medium to long term. As a result, the auto component industry would be an indirect beneficiary of this growth.

“The Budget is encouraging due to its focus on infrastructure, education, agriculture, irrigation, health care and social security schemes. 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, president and managing director, General Motors India. He added, “As far as the automotive industry is concerned, the Budget did not fully meet the expectations as the sector continues to remain sluggish.”

According to Baba Kalyani, chairman and managing director, Bharat Forge, “The Budget must be looked at against the larger backdrop of the unprecedented global economic and financial crisis. Increased allocation for highways, urban infrastructure, power and the national gas grid are welcome.”

“It’s not exactly what we expected but it’s a sound Budget,” said R Seshasayee, managing director, Ashok Leyland. He added, “It’s a positive forward-looking statement of intent though it suffers under the weight of high expectations, some of it raised by the economic survey.”

Ashwani Keswani, Country Head, Oetiker India, said: “The Budget is status quo for the automotive industry in most ways. I guess they had already effected a number of stimulus injections in the past few months and expecting more would have been unrealistic. Cost of inputs and raw materials have been down and will depend again on the crude movement. I guess it’s mainly a Budget to thank the general public for the return of the UPA!”