The Indian car industry's expectations and recommendations.

Nirmala Sitharaman, the Union Finance Minister, is slated to unveil the Budget 2022 on February 1. The Indian car sector is anticipating some positive sops and announcements to lift the otherwise slumping industry, which is dealing with difficulties such as chip shortages and occasional lockdowns. Prior to the budget, we collated budget expectations and suggestions from several industry organizations for the government.

Automotive Dealers

The Federation of Automobile Dealers Association (FADA), the main body for Indian Automobile Retailers, has identified a number of challenges that they believe are impeding the growth of the Indian Automobile Industry and Auto Dealerships in general.

1) Introduce benefits of claiming depreciation on vehicles for Individuals paying Income Tax:

  • FADA requests that the Finance Ministry make it possible for people to account for depreciation. This would not only increase the number of people completing their Income Tax (IT) returns, but it will also spark consumer demand for automobiles (particularly two-wheelers), increasing the government's Goods Service Tax (GST) collection. Vehicles depreciate for both corporations and individuals, therefore it is only fair that the salaried class receives the same advantage.

2) Depreciation rate for vehicles:

  • FADA recommends that the Depreciation Scheme, which was only effective through March 31, 2020, be reinstated and extended for fiscal year 2022-23. The dealer organization is grateful to the government for temporarily boosting the depreciation rate for all types of automobiles acquired before March 31, 2020 as a step to stimulate growth.

3) Regulation of GST rates to boost volumes:

  • To re-establish the industry and auto retail trade on a development path, FADA recommends that the Ministry regulate and cut GST rates on two-wheelers to 18 %, while continuing to propel our country to worldwide leadership. It is worth noting that the 2W is utilized not as a luxury but as a need by the lower class and rural segments to travel long distances for their daily working demands. As a result, the logic of 28 % GST + 2 % chess for luxury / sin items does not apply to the Two-Wheeler category.
  • Why At a time when car costs are growing every 3-4 months due to ongoing price increases in metals and other variables, a drop in GST rate will offset the price increase and assist boost demand.
  • The Association thinks that the rise in demand and the rippling effects it will have on many dependent industries will enhance tax revenues and, in the medium to long term, will actually be revenue positive, as well as improving general consumer mood and hence the broader economy.

4) Reduction in GST rates for Used Cars To 5%:

  • The GST rate on secondhand autos is now between 12% and 18%. 12 % for cars shorter than 4000 mm and 18 % for trucks longer than 4000 mm.
  • The used automobile market is 1.4 times the size of the new car industry, accounting for 5-5.5 million vehicles each year with a turnover of more than Rs. 1.75 trillion. Authorized dealers account for just 10-15% of this trade, which is also part of the organized sector and consequently pays taxes.
  • If the dealer purchases a used automobile from a customer, no Indian conglomerate company (ITC) will be available for the dealer to claim because no tax was paid under advance charge or Reverse Charge Mechanism (RCM). There will be cascade to the degree of the dealer's value addition in such a case.
  • As a result, the Association recommends a standard Goods Service Tax (GST) rate of 5% on the margin for all used automobiles, creating a win-win scenario for the government, dealers, and vehicle owners. With the reduction in GST, the sector would be able to migrate from an unorganized to an organized segment, bringing more companies under the purview of GST and putting a stop to tax leakages.

Electric Mobility

The central government has established a number of encouraging policies to boost e-mobility in the country. In recent years, the sector has grown at a rapid pace. However, more work has to be done to fully electrify the country's autos. Here are some of the Society of Manufacturers of Electric Vehicle's (SMEV) predictions for the forthcoming Union Budget 2022–2023:

1. Priority Lending:

  • To build a strong ecosystem for electric vehicles and strengthen the Electric Vehicle (EV) market, the government should consider making EVs a priority loan sector. It will make EVs more affordable to citizens by lowering financing rates.

2. Inclusion of clean air campaign in Swatch Bharat:

  • LED and solar initiatives have done wonders for the country, and the same can be done with EVs. A separate fund may be set up for the 'Clean Air' campaign, which could be integrated into the Swachh Bharat goal to achieve the next level of cleanliness for not just our houses and dwellings, but also the air we breathe. The 'Clean Air Campaign' has the ability to increase vast knowledge about electric mobility as well as impact customer attitudes toward embracing electric mobility, making India less polluted and its population healthier.

3. R&D in Battery Manufacturing:

  • We will end up in a scenario comparable to, if not worse than, our dependency on crude oil unless we work aggressively and hard on EV batteries. The current state of research is pitifully poor, diluted, and dispersed. The government should set aside adequate funding for R&D in a public-private partnership manner, with a time-bound goal of developing EV batteries that are less reliant on offshore materials and more suited to the Indian environment. The ACC system can be appropriately modified to incentivize R&D initiatives.

4. Skill Development:

  • As we all know, a sudden shift to cleaner mobility might endanger the massive workforce involved in IC engine manufacture and after-sales servicing. This may be turned into an opportunity through a large-scale gross national program of rescaling our existing workforce as well as enrollment in institutes such as ITIs and diplomas. A few attempts have been made, but a special emphasis with specific financial allocation would be necessary to remodel all educational institutes and training facilities in order to reduce the time and misery of a common guy involved in the IC.

5. Export Concessions:

  • The global thirst for larger SUVs and higher-powered motorbikes is gradually giving way to tiny and smaller electric automobiles and scooters. As a result, miracles may be performed in low-cost little cars and scooters, just as they do in IC engine vehicles. To acquire a worldwide stamp on electric vehicles, some incentives can be extended in the form of subsidies to domestic customers for exporting such vehicles. This is a significant market sector that Indian manufacturers may seize before multinational firms with lower-cost products enter the market.

6. Amendment in PLI Scheme for Automobile and Auto Component:

  • While the PLI plan will undoubtedly provide incentives for major players, it is also creating an unfair price disadvantage for small and medium-sized EV companies in the market who do not eligible for incentives under the Production Linked Incentives (PLI) programdue to their size, turnover, and histories. As a result, we ask the government to level the playing field by amending the program so that MSME EV players, as well as current and new players, can participate.

7. Citizen Reward Program:

  • Today's EV client has an excellent subsidy program to sway his decision to purchase an EV over an IC engine. It is time to make Electric Vehicle (EV) owners happy of their purchase and convince them that they have done something positive for society, the country, and the environment. A limited fund might be set aside for a green point card for all EV owners, similar to the sorts of mileage cards used by airlines, which can be used to access fast track services or accumulate points for incentives at various places and events.

Used Vehicles

Sandeep Aggarwal, creator of Droom, one of India's major used vehicle marketplaces, has the following predictions for the automobile industry.

1. Digitization:

  • In the last two decades, the car industry has experienced remarkable expansion and transformation. We have seen that, after COVID, automotive purchasing and selling is transferring online at a quicker rate due to restraints such as avoiding personal contact and reservations in visiting a physical dealership. We expect that the next Budget 2022 continues to pave the path for digitalization of car sector laws, which will enhance interstate vehicle sales, shorten the time it takes to transfer ownership, and cut taxes.

Start Ups

  • Online gasoline delivery, for example, is challenging old business models and excelling at leveraging technology to create new opportunities. According to Dr. Rajiv Mathur, Managing Director of The Fuel Delivery, the Union Budget 2022-23 should foster innovative start-ups that can strengthen the Indian economy.

1. Boost to innovation-driven startups:

  • Almost every item, Including clothing, Food, Books-stationery and even gasoline, can now be acquired online with a single click. People are increasingly depending on e-commerce for the delivery of critical commodities, like fuel, as their lives become more comfortable and easier. Given that diesel is the most widely used petroleum product in India, accounting for 40% of total fuel use across sectors (including business houses and IT parks, real estate, transportation, agriculture, manufacturing, mining, and many others), many innovators are disrupting traditional distribution models, resulting in the growth of several startups in doorstep fuel delivery.
  • Furthermore, doorstep delivery of fuel has resulted in the establishment of 'Fuel Ent' , a flagship program of the Indian government aimed at creating a robust ecosystem for entrepreneurs seeking to promote sustainable growth. It saves them the time and trouble of waiting in huge lines and dealing with traffic. It also reduces transportation expenses and acts as a low-cost medium for goods distribution. The expansion of Fuel Ent solutions will create enormous opportunity for innovation and redefining the client experience. As a result, the budget 2022-23 is an important event for the Indian economy, particularly for small enterprises and startups.

Rental & Lease Car Segments

Given that buying a new car isn't always an option, and public transit isn't always an option due to safety concerns, the obvious alternative in the last two years has been shared mobility, particularly on a subscription basis. Sakshi Vij, Founder of Myles Cars, a car rental and subscription company, has this to say.

1. More Clarity on EV Progression:

  • Honorable Finance Minister Smt. Nirmala Sitharaman should consider increasing domestic demand by promoting individual and commercial EV adoption across India. The worldwide epidemic has demonstrated that the rest of the world desires an alternative to China in the processed foods business. India must seize this opportunity by establishing an EV manufacturing cluster. We anticipate that the government will increase EV financing and create feasible choices for customers to utilize them in Budget 2022. More EVs should be accessible in India as a result of favorable import tariffs. Furthermore, a simpler entry window for businesses that can readily address sustainability and climate change goals with government and policy-making authorities is required.

You might also like