2021 Budget: What's in store for the auto industry

Apart from the announcement of the long-awated Scrappage Policy, the Budget 2021 had several indirect boosters that can help as a catalyst to push growth for the automobile industry including developing infrastructure, greater outlay for public transport systems and increasing duty on auto components in a bid to encourage atmanirbharta.

Push to highway construction
The Finance Minister announced that the government’s Infra Asset Monetisation program will now include the NHAI operational toll roads with an outlay of Rs 118,101 crores for the Ministry of Road Transport and Highways.

It plans to award 8,500-km of highways by March 2022 and 11,000 km of national highway corridor will be completed. The proposed highway works over the next three years include

• 3,500 km corridor in Tamil Nadu
• 1,100 km in Kerala
• 675 km in West Bengal
• 1,300 km in Assam

Speaking on the allocations in the Budget, Deepak Jain, President ACMA said, “The vision of Atmanirbhar Bharat enshrined in the Budget coupled with the ‘Sankalp’ of ‘nation-first’ will be the bedrock to propel us further as we redefine our economy in a post-pandemic world.
Announcements with regards increased spend on road infrastructure, voluntary Scrappage Policy, R&D and PLI among others, augur well for the automotive sector. Further, continued focus on building rural and agricultural infrastructure and prioritising agriculture credit growth will have long-term positive impact on rural demand for vehicles.”

Boost to public transport
In a post-Covid world, public transport and shared mobility have surely taken a hit. However a new scheme in the Budget launched at a cost of Rs 18000 crores to support augmentation of Public Bus Transport Services is seen as a major booster. Stocks of key bus manufacturing companies like Tata Motors and Ashok Leyland gave a big thumbs up to the move with close to two percent gains in intra-day trade.

More support for skilling
The need for re-skilling and the noise around it has been increasing across the automotive industry. The Budget announcement about higher focus on skilling is also seen as a big positive. 2016’s National Apprenticeship Scheme is now realigned to provide graduate & diploma holder training. Collaboration with Japan for transfer of Japanese industrial & vocational skills and Rs 50,000 crore allocated to strengthen R&D infrastructure will not just empower local talent but also give a boost to local R&D initiatives, making a case for ‘Atmanirbhar Bharat.’

Duty a leveller
The government’s initiative to enhance localisation and encourage indigenous manufacturing was further highlighted in announcements about exempting duty on steel scrap for a specified period and cutting duty on copper scrap 2.5% from 5%. Specifically in capital equipment and auto parts, duty rates have been revised on certain items immediately to bring them on par.

 Responding to the duties, Deepak Jain mentioned that, “Increase in basic customs duty on select auto components will encourage local manufacturing of such items. It is also heartening that the Budget outlay for the MSME sector has been doubled compared to last year. The auto component industry is dominated by MSME and will provide them the necessary succour as the industry recovers.”

Additionally, the government sees potential for solar energy development in India and will notify a phased manufacturing plan for solar cells and panels. Duty on solar inverters and cells have been raised as well to encourage domestic production.

That apart, in a bid to boost start-ups, Finance Minister has allowed formation of one-person companies without restrictions, paid-up capital or turnover norms. However, there was no mention of any further cut in the GST rates. 

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