Finance Minister announces measures to boost the auto sector

For the past few months, automotive sales in India have seen their worst ever decline in about two decades. Finance Minister Nirmala Sitharaman conducted a meeting with top-level executives of leading automotive companies two weeks ago to discuss measures to bolster growth. And finally, some relief measures were announced yesterday to boost sales.

Vehicle registration fee hike postponed

The finance ministry had proposed a plan to increase the vehicle registration fee and also to hike the renewal of registration fee. This has now been postponed to June 2020. Current registration fee for two-wheelers is Rs 50 which will become Rs 1000 while the renewal charges of registration will be Rs 2000. Cars also take a big hit, as the current Rs 600 registration fee will rocket to Rs 5000.

Vehicle scrappage policy to be announced soon

With millions of vehicles sold every month in India, a detailed scrappage policy was always necessary. This will greatly contribute in removing old and polluting vehicles from the road and also generate demand for new as well as used vehicles. The policy is currently being formulated by the transport and the finance ministry and the final decision will be made by Prime Minister’s Office (PMO).

Relief for BS IV vehicles purchased before March 2020

There was a fear among automotive companies as well as buyers regarding the status of BS IV after March 2020. However, some light has finally been shed in this regard. The BS IV vehicles purchased before 31st March 2020 will be allowed to ply on Indian roads during their entire period of registration. The BS6 emission norms will strictly be implemented from April 2020, to tone down the ever-increasing vehicular pollution.

Rs 70,000 crore capital for PSUs

In addition to the Rs 5 lakh crore upfront capital announced for public sector banks during the Union Budget 2019, the Finance Minister announced a Rs 70,000 crore upfront capital to private sector banks as well along with Rs 20,000 crore for National Housing Bank. This enhanced liquidity in the system along with linking of repo rate to interest rates charged for vehicle purchases would support low EMIs for vehicle buying.

Foreign Portfolio Investors breathe easy

What is also a healing measure for Foreign Portfolio Investors is the withdrawal of the surcharge that was being levied on them. For individuals with an income of over Rs 5 crore per annum, the income tax sky rocketed from 15 to 37 per cent. This was majorly discouraging for international companies to invest in India. Thankfully, this surcharge has been withdrawn.

Higher depreciation cost

The lifting of the ban on purchase of vehicles by government departments and a 15 per cent higher depreciation for all types of vehicles bought before 30 March 2020 is the short-term measure aimed at boosting sales. This takes the total depreciation to 30 per cent.

Here are some quotes from industry experts on the announcement:

Commenting on the package of measures announced, Rohit Suri, MD, JLR India Limited said, “While the increased depreciation from 15 to 30 per cent and deferment of increased registration fees till June 2020 will have a positive impact, moderation of GST base rate from 28 to 18 per cent for all categories as being requested by the auto industry for some time now would have been the real demand stimulant!”

A similar statement was issued by Vikram Kasbekar, executive director and CTO, Hero MotoCorp, “The announcements for the automotive sector provide clarity and positivity to both OEMs and customers. However, we would reiterate our request that two-wheelers, which are neither luxury nor ‘sin’ goods, require a reduction in the rate of GST from 28 to 18 per cent. This will help boost demand immediately.”

Rahil Ansari, Head, Audi India too commented on the move by the finance ministry. He said, “We highly appreciate the approach of the government and the support. Now it is up to the banks and NBFCs to deliver the trust and benefit given. We are confident that the ease of access on loans to consumers will also be improved by banks. Independent of this we have had and will continue to have strong in-house financing that customers can continuously rely on. Additionally, the clarity on BS-IV vehicles and decision to support all fuels will remove the confusion that customers are facing.”

The announcement was very critical for the automotive industry as the slowdown has not only affected automotive brands currently selling their vehicles in India, but also the OEMs that supply parts and necessary components. Companies shut down for a few days, cut production and also laid off hundreds of employees. The auto industry contributes to about 10% (approx) of the country’s total GDP and we hope more measures (like reduction of GST) are brought in place to boost demand. Policies for scrappage and used cars too would help revive this sector.

Source: SIAM