India Auto Inc needs the right booster vaccine in Budget 2021

by Murali Gopalan 01 Feb 2021

Finance Minister, Nirmala Sitharaman presents her Union Budget at a time when Covid-19 cases are falling dramatically in India which augurs well for the remainder of the year.

Yet, there is a lot of repair work to be done to alleviate the damage caused in 2020 when the pandemic was on the rampage and robbed people of their livelihoods. Medium and small scale enterprises were also badly hit which means they will also be in dire need of a lifeline.

Remedying these issues will help the auto industry immensely even as it grapples with the reality of fuel prices going through the roof. Petrol and diesel have long crossed the Rs 80 per litre mark in almost all parts of the country (petrol is actually retailing at over Rs 90 per litre in Maharashtra – Rs 92.86 in Mumbai today – and rapidly inching towards the Rs 100 mark) which means there will be customer resistance going forward. Diesel too is not spared and now costs Rs 80-plus per litre across India. Mumbai’s diesel price today is Rs 83.30 a litre.

This will become more pronounced once public transport resumes in full vigour even as a section of industry experts insist that personal mobility will continue to see traction thanks to the paranoia of social distancing. By the end of the day, people will need to balance their household budgets which means a ride in a Mumbai suburban train is definitely more affordable than travelling in a car.

It is for this category of customers that the Finance Minister will have to offer sops and ensure that they continue to buy their two-wheelers and cars. It is imperative that people spend aggressively for the economy to start moving again and for this to happen, they will need to have more money in their pockets. 

Tax breaks for the salaried class will be a big boost in this direction especially when the Centre is not going to reduce fuel prices in a hurry — along with the States, it needs to mop up revenue especially when economic activity came to a standstill during the worst phases of the lockdown last year. Petrol and diesel form important revenue sources to the kitty. 

Small scale enterprises, likewise, suffered during the pandemic and many are strapped for cash. They could go belly-up if there is no help available and it is in this context that the Budget may offer them easier access to funding. From the auto industry’s point of view, this is critical especially for Tier 2/3  ancillary suppliers who form an integral part of the supply chain which is still fragile and not completely out of the woods.

Rural India is bound to get some generous outlays which will then translate into positive news for the industry. The last few months have seen motorcycle sales surge as well as compact cars and SUVs. With more money allocated to rural India, buyers will continue to queue up for vehicles which will be music to manufacturers’ ears.

The industry has also been seeking a reduction in the GST levy from 28 to 18 per cent and while this is unlikely to be in the form of an announcement in the Budget, there could well be an articulation of intent. This by itself is bound to boost sentiment which is a good thing in these difficult times.

Infrastructure spending will also see a fillip, keeping in line with Budgets of the past years, and the commercial vehicle industry will welcome this wholeheartedly. It will also help the construction equipment industry in a big way since there is no better way to keep their adrenaline pumping than work on roads, bridges, irrigation projects and the like.

The pandemic has seen millions of jobs lost and even in the auto industry, it would be fair to assume that layoffs were severe across the supply chain with contract workers bearing the brunt. It is important for these people to start working again which only reinforces the need to pull out all the stops for the economy to start firing on all cylinders again. All eyes will be on Ms Sitharaman as she gets set to present the Budget in a few hours from now. 

Stay tuned to Autocar Professional as we bring you updates on the Union Budget 2021, followed by a panel discussion at 5pm today.

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