Interim Budget ignores auto sector

If the auto industry was expecting sops to boost sentiment and business, it was left sorely disappointed as the Interim Union Budget failed to deliver on these expectations.

The recent Interim Budget unveiled by acting finance minister Pranab Mukherjee on February 16 did not have any provisions directly relating to the automotive sector. We asked automotive industry leaders about their views on the latest Budget and what their expectations are from the next one, which is due to be announced after the elections in May this year.

Dr Pawan Goenka, President, Auto Sector, Mahindra & Mahindra

"There were no specific measures announced that will have any direct impact on the industry. The auto industry was hoping to get some excise relief for large cars and MUVs which has not happened. Many other measures for fiscal stimulus are really not necessarily Budget items."

Karsten Bogun, Managing Director (Commercial) – Skoda India

"There have been no specific relief measures announced for the auto industry. Since this was an interim Budget, we were not expecting any major policy amendments.

However, initiatives like changes in excise and custom duties, and the easing of monetary policy would have certainly helped in providing a measure of relief to the auto sector. I am hoping that the next stimulus package announced by the government will address these concerns. On the other hand, Budget initiatives like increased spending on infrastructure and rural projects will help in reviving the economy, and hopefully lead to a rise in automotive sales.

We are expecting the second half of 2009 to look positive for the sector given the current initiatives."

Ashish Sinharoy, VP, Communications & Corp Affairs, Renault India

"This being an interim Budget, the finance minister could not have made any major announcements. What the government thought of doing, it had already done in the past two months. There was also much media hype before the Budget that made it look like a damp squib. Of course, the least it could have done was to clear the doubt about the tenure of the CENVAT reduction. Ordinarily it should lapse on March 31, 2009.

What we need is for the Government to realise that the global recessionary trend is also impacting India, especially the manufacturing sector. What is hurting the most is the credit squeeze, resulting in rock-solid small and medium- sized companies collapsing and larger ones running scared. Also, with global credit either drying up or becoming too expensive, new projects are being postponed or shelved.

As is being done in many countries, the government of India should take steps to ensure that credit is made available for new projects at five to six percent rate of interest. This will not only keep the projects in India, but also ensure that the prospective jobs do not disappear. The current extraordinary circumstances demand extraordinary measures and a more holistic approach to governance."

R L Ravichandran, CEO, Royal Enfield

"Being a vote-on-account Budget, it is not correct to expect any new fiscal incentives. The sops in terms of segment-specific duty reduction and RBI interest rate cuts for housing are steps in the right direction. Now with crude prices and inflation falling, there is a possibility for economic stability. The automobile sector has started showing signs of marginal recovery. For the two-wheeler industry, the biggest drivers of growth are easy financing, lower acquisition cost and low ownership costs. I doubt our public sector banks can fill the void created by the NBFCs in two-wheeler financing, both in their aggression and their marketing of loans for smaller amounts of Rs 50,000. As a result, there is less motivation for existing two-wheeler owners to upgrade. This makes it more difficult to convert latent demand for basic mobility all over the country. "

Akash Passey, MD, Volvo Buses

"The Budget supports the core industry by committing to infrastructure investments, which will eventually support the CV industry too. Specifically, the increased outlay for the Jawaharlal Nehru National Urban Renewal Mission (JNNURM )project is very welcome and will motivate cities to consider modern, efficient and sustainable urban mobility solutions. These can provide citizens a better quality of life and also help cities to choose solutions that can support their development plans over the long term."

Dilip Chenoy, Director-General, SIAM

"The increased outlay for the JNURNM, Ministry of Defence and Ministry of Surface Transport in the Interim Budget could be used for funding the vehicle replacement programme and help boost the purchase of new vehicles.

The statement postponing the reaching of the target under the Fiscal Responsibility and Budget Management (FRBM) Act has also provided policy space both for the current and future government to implement further stimulus packages.

The Society of Indian Automobile Manufacturers hopes that looking at the current market scenario and the economic environment, the government would shortly come out with further fiscal and monetary measures to revive growth. The automotive industry needs big-bang support which will push the sector out of the de-growth environment and help stimulate it so that it can revive economic growth."

R Srivatchan, President, TV Sundram Iyengar & Sons

"Regarding the auto sector, things are complicated and I feel that no government could have done any better. I think not many people have understood why there is recession in domestic market. Is it finance, demand, price, purchasing power or something else that has caused the downturn? The picture is confusing and hence the solutions also have to be multi-pronged. It is good that they are staying away from action till the root cause is understood. As for the auto components industry, those who are exporters will not benefit from efforts to revive demand in India anyway. I think that the government has done the right thing by doing nothing."

Shyam Kambeyanda, MD, Eaton Corporation (India)

"Since no big announcements were made in the Interim Budget, automotive investments may be pushed by four to six months, in anticipation of a new policy direction from the next elected government.

The government’s efforts on the fiscal side may create a reflective upside for us. As inflation continues its downward journey, this provides additional headway to the government and the Reserve Bank of India, to further cut interest rates in order to push consumption in areas like real estate and automotive sectors.

To be fair, the government has done well in the current situation, especially in the area of managing inflation and injecting liquidity into the system through proactive monetary measures and cutting interest rates. We do see some very early signs of revival but we would like to see more stimulus packages and investments to boost investment sentiment and increase consumption. If we look around our neighbourhood, China is making a US$ 3.6 trillion investment over 2009 and 2010 and 45 percent of it will go to infrastructure projects. Eaton is into five major businesses — electrical, hydraulics, aerospace, truck and automotive. Our products go into infrastructure, construction, high technology and transportation sectors.

Although the outlay on certain infrastructure projects has been increased, what matters the most is the speed of implementation of these projects. Besides, the government should clear the air around certain policy areas like the SEZ Tax exemption under Section 10 (AA), position on extension of tax holidays to STPI and EOUs.

We would like to see the government putting money back into the consumer’s pockets by cutting taxes and encouraging investments with tax breaks, like infrastructure bonds, to increase their disposable incomes particularly for the middle class.

Last but not least, we would like to see focused government incentives to increase the use of green products and solutions such as hybrid cars, green buildings with LEEDs certification and green power in India."

Tushar Mehendale, MD, ElectroMech India

"In times of economic slowdown, extra focus on building up infrastructure has historically been shown to reduce the impact of such a slowdown on the economy. Hence, our main wish is that the government puts its money where its mouth is and give a host of incentives for setting up massive infrastructure projects.

Given the timeline of this Budget, it is a foregone conclusion that this was going to be a populist Budget. Interestingly, such a Budget might just help in improving the overall sentiment of the people and will also give a boost to the economy by ramping up spending and consumption. Given the general feeling of gloom and doom in the industry today, a number of industry leaders will be really hesitant in taking any bold steps to enhance their capacities. However, we do expect a lot of action to take place on the infrastructure space. All these projects are long term ones and typically financed through soft loans at highly subsidised rates.

Furthermore, there are a lot of discussions as well as actions from the government’s side to push- start the economy by giving an extra impetus to such infrastructure projects. We foresee a lot of new roads, bridges and power-plant projects to be announced. These will definitely have an impact on the remaining industries like cement and steel and will thus lead to a general growth in the economy. However, this will be a slow process and we expect to see some recovery by August or September this year."