Dr Pawan Goenka's Top 7 observations on Budget 2020-21

As he does each year and with each Union Budget, automotive industry veteran and Managing Director of Mahindra & Mahindra, Dr Pawan Goenka puts down his main observations from the government's fiscal exercise. These are his views on the Budget proposals announced by Finance MInister Nirmala Sitharaman.

1) Not much in the Budget to spur short-term demand
According to Dr Pawan Goenka, though the Union Budget offers several impetuses for long-term growth, there is not much in it for immediate demand revival for the automotive industry.

“My view is that probably more could have been done in reviving demand for which some short-term immediate measures were required," he said in a media meet in Mumbai. Dr Goenka claims that what is needed now is to revive demand. If this happens, everything else will fall into place.

He said what this Budget should have focused on was on reviving demand but emphasised that he understands the government has limited fiscal room. Last year’s fiscal deficit is now pegged at 3.8 percent; he would have liked it to be maintained at 3.8 percent rather than 3.5 percent, which would give room to do things that will revive demand either in terms of some indirect tax reduction on in terms of extra expenditure or in terms of little bit more in real income tax reduction. “So, that could have been probably nice as the economy needs revival of demand,” he pointed out.  

2) Scrappage policy announcement would have been nice for industry
Dr Goenka said that a Budget announcement on a vehicle scrappage policy for India would have been a nice thing to do. “A scrappage policy does not come for free. There is a cost attached to it. But if it would have revived demand and given how high the GST per unit is in the auto industry, that probably would have been revenue-neutral in terms of tax collection and a lot of positivity in terms of economy."

3) Making BS VI cost increase GST-neutral
Another industry growth booster would have been making BS VI cost increase GST-neutral. Given the emission technology upgrade, all vehicles have seen a BS VI cost increase, which means in turn GST also goes up. “They could have made at least the cost increase GST- neutral," commented Dr Goenka, hoping that there is room for change in GST Council later.

4) Increase in EV import duties in line with Make in India
As regards the increase in customs duties on completely built and knocked down units of certain segments of electric vehicles, Dr Goenka said the government is clearly looking to enhance localisation in the EV industry.

Beginning April 1, Completely Built Units (CBU) of commercial EVs will see their import duties increase to 40 percent from 25 percent earlier. Secondly, Semi Knocked Down (SKD) forms of electric passenger vehicles and three-wheelers will have to shell out 30 percent duties as compared to 15 percent earlier. Thirdly, SKD forms of electric buses, trucks and two-wheelers will see duties rising to 25 percent now from 15 percent earlier. Also, CKD EVs (passenger vehicles, buses and trucks, three- and two-wheelers) will see customs duties increasing to 15 percent from 10 percent earlier.

Dr Goenka, however, is of the view that the duties on lithium-ion batteries should have been removed, thereby bringing the overall cost of the EV down by 2-3 percent. “One small thing that they could have done in this Budget, which appeared very logical to us, was to remove the import duty from the lithium-ion cells since they are not made in India.” The duties were levied last year.

5) Income tax slab change may not have much impact
The Union Budget offers to cut personal income tax rates for those earning up to Rs 15 lakh a year, provided they let go their exemptions. As per the new tax slab rates, there will be a 10 percent taxation for those earning between Rs 5-7.5 lakh. It will be 15 percent for earnings between Rs 7.5 – 10 lakh and 20 percent deduction for earnings between Rs 10-12.5 lakh. Further those earning between Rs 12.5-15 lakh will be taxed at 25 percent while it will be 30 percent for income over Rs 15 lakh.

Commenting on the announcement, Dr Goenka said, “As far as income tax is concerned, I still don’t know how the math will work out. Because this is not a reduction in slab. It is giving lower slab in lieu of no exemption.”

6) Thrust on rural economy
According to Dr Goenka, a comprehensive portion of the Union Budget focuses on irrigation, and rural development including the doubling of farm income by the year 2022. Any improvement is surely to have a rub- off effect on other segments of growth. Dr Goenka expects tractor sales to remain good during February-March 2020 period due to a good Rabi crop output before going down during the traditionally dull months of April-July. Ddemand is likely to turn robust later in the year between August and September.

7) No major announcement in infra, but NIP to help
Though nothing significant was announced regarding infrastructure development, the National Infrastructure Pipeline (NIP) revealed last month by the government will help in spurring some demand for the automotive industry. “Any infrastructure development helps the automotive industry,” pointed out Dr Goenka. The government had last month announced its plan to invest around Rs 105 lakh crore under various infrastructure projects including about Rs 20 lakh crore in road sector.

Also read: What India Auto Inc stakeholders have to say about the Budget