The 2020-21 Annual Financial Statement will be presented by the current Finance Minister of India, Nirmala Sitharaman on the coming Saturday i.e. February 1. The economy is facing the worst run rate in 42 years, while the automobile industry is facing one of its worst slowdowns in over two decades as well.
2019 was one of the toughest years for automobile manufacturers, and most had to resort to offering insane discounts to get the sales figures back on track. To top it off, the transition from BS4 emission norms to more stringent BS6 ones has made the matters worse.
In order to overcome the slump in the automobile industry, The Society of Indian Automobile Manufacturers (SIAM) has sent some recommendations to the government for the Budget 2020-21.
Rajan Wadhera, President of Society of Indian Automobile Manufacturers said, "As SIAM we have urged the Finance Ministry to consider announcing an incentive-based scrappage policy and also increase budget allocation for ICE bus procurement by state transport undertakings. The increased cost of BS6 may affect demand.”
GST reduction on vehicles
Mr. Rajan Wadhera, President of Society of Indian Automobile Manufacturers said that SIAM has requested the government to cut GST rates on BS6 vehicles from 28 percent to 18 percent, effective from April 1, 2020.
However, it is definitely not the first time that the premier apex body, which represents the leading vehicle and engine manufacturers of the country has asked for a reduction in GST rates. SIAM has been demanding the reduction of GST rates in order to uplift the sales for over a year now.
On the other hand, Hybrid cars are placed under the same tax slab as large cars and SUVs and are taxed at 43 percent, as against the 5 percent GST on pure EVs.
Incentive-based scrappage policy
Mr. Wadhera said that SIAM also suggested that in order to remove old and polluting vehicles off the roads, an incentive-based scrappage policy should be introduced. This policy will help dispose of outdated vehicles plying on the roads, as well as increase the demand for new commercial vehicles, which are safer and come equipped with newer technologies.
Incentivise private buyers of EVs and hybrid cars
The government adopted the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) scheme back in 2015, which provides subsidies for commercial EVs.
However, the automotive industry demands that the same treatment be given to private EV and hybrid car buyers, in order to increase demand for such vehicles.
Abolition of duty on import of lithium-ion battery cells
SIAM has also requested the abolishment of the customs duty of 5 percent on Lithium-ion Cells to allow battery manufacturing to begin in India, hence bringing the cost of the batteries down. Incentives should also be offered for the local manufacturing of EV batteries.
Mr. Rajeev Chaba, President, and Managing Director, MG Motor India concurred that more steps need to be taken in order to promote EV adoption in India. MG recently launched the ZS EV in India at a starting price of Rs 20.88 lakh (ex-showroom), which is touted as the country’s first pure electric internet SUV.
“The government’s recent announcements on the promotion of EVs in India, especially for government use and public transport, is encouraging,” he said. If the government provides the right policy, incentives, and charging infrastructure, it will increase the number of EVs on roads, not only as a means of public transport but among private customers as well.
A total of 2,30,73,438 units of passenger vehicles, two-wheelers and commercial vehicles combined were sold in the country last year, as compared to 2,67,58,787 units sold in 2018. This has resulted in a decline in sales of 13.77 percent, which is the worst degrowth in around twenty years.
Come April 1, and the country will shift from BS4 to stricter BS6 emission norms, which will result in an average price hike of over 10 percent for all vehicles. All two-wheeler and four-wheeler manufacturers are on the verge of launching BS6-compliant versions of their products, and many leading automakers are already in the process of doing so.
The lower GST rate could prove to be helpful in pulling the automobile industry out of the slump and bring the growth trajectory back, even during the BS6 era.