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Indian Union Budget 2016 and its impact on Automobile Industry

Indian Union Budget 2016 and its impact on Automobile Industry

Snapshot: The Union Budget of India 2016 didn't bring any good news for the Indian Automobile Industry.

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And it's done! Finance Minister of India, Sh. Arun Jaitley has presented the Union Budget 2016 in Parliament, his third till date. While all the stakeholders in the Indian Economy were anticipating the budget, we being the part of the automotive industry, were more concerned about its impact on the automotive world. Needless to say, the 2016 Union Budget disappointed everyone as far as the auto industry is concerned.

Here's our understanding of the Union Budget 2016 from the automotive industry point of view!


With the Make-in-India initiative, the government of India raised a hope among the domestic manufacturers as well as prospective manufacturers who were planning to set a base in India. And so, the Auto manufacturers expected major reforms from the BJP-led GOI. SIAM, the automobile body of India welcomed the earlier presented rail budget 2016 that proposed a Rail Auto Hub in Chennai.

In this regard, SIAM has suggested a variety of steps that could help the automobile sector to bounce back. Some of the expectations were-

1. Reduce excise duty on big cars and SUVs to 20% from 24, 27 & 30%

2. Initiate a programme for the scrapping of old vehicles

3. Implementation of GST (Goods and Services Tax)

4. Rebate to Hybrid/Electric vehicles 

5. Lower Interest Rates on Automobiles

SIAM Director General Vishnu Mathur told to PTI, "We have asked for 20 per cent excise duty on vehicles that currently have excise duties of 24, 27 and 30 percent, "Explaining further, he said, "From 12.5 to 30 percent, the differential in excise duty has grown over the years. We are asking for two rates; one for small cars and one for large vehicles."

On controlling the rising air-pollution, Mathur said, "The second thing which we are asking is incentive scheme for scrapping of old vehicles." He further explained, "We want this vehicle scrapping scheme to be incentive based and not a mandatory one. Even if 15-20 percent old vehicles go off the road, it will make a huge difference. Besides, the scheme would be revenue positive for the government”.


On the contrary to the expectations, the 2016 Union Budget proved to be a dud for the Indian Automotible Industry. Much emphasis is laid on improving the infrastructure along the rural areas, as well as completing the stalled projects. On the other hand, cars, especially luxury and SUVs will get dearer by at least 4%. Here's the list of announcements by Arun Jaitley, Finance Minister of India-

1. Infrastructure Tax of 1% imposed on petrol, CNG and LPG Cars

2. Infrastructure Tax of 2.5% on small diesel cars

3. Infrastructure Tax  of 4% on bigger diesel cars and SUV

4. 10000 km of highways promised in 2016-2017

5. 85% stalled road projects back on track

6. Rs 19000 Cr allotted in 2017 for PM's Gram Sadak Yojna

7. Outlay of Rs. 2,21,246 Cr for railways, roads in 2017

8. SUV, Luxury cars to be more expensive

9. Increase in Custom Duty on commercial vehicles from 10% to 40%

10. Emphasis on Make-in-India project, resulting in local manufacturing

11. Excise duties to be waived off on Electrics and Hybrids

Mr. Jaitley said that “Passenger traffic on roads have been made more efficient”. He added, “The government targets 10,000 kms of new national highways and upgradation & redevelopment of 50,000 kms of state highways under national highways in 2016/17. Financial Year 2015 saw highest production of Motor Vehicles in India, thus we can expect Budget 2016 to have improved road infrastructure as 2016 will see more production of vehicles than 2015.

Positives and Negatives

The table below lists down top hits and misses at the 2016 Union Budget of India!

Manufacturer's Remarks

Mr. Joe King, Head, Audi India

"The budget presents a transformative agenda with clear-cut focus on initiatives for farmers, rural sector and infrastructure development. However, it negatively impacts the automobile industry. We are disappointed that the industry’s demand on reducing excise duty has not been addressed. On the contrary, 1% Infra cess on Petrol, CNG, LPG cars, 2.5% on small diesel cars and 4% on bigger diesel cars and SUVs has been added which will further affect the price and consequently demand. Also, we need to evaluate the impact of extra tax levy of 1% on purchase of cars above Rs.10 Lakh. Government has not announced any positive initiatives for the industry which contributes so heavily to the manufacturing sector and overall economy."

Dr. Pawan Goenka, Executive Director, M&M Ltd

"On the face of it, imposing upto 4% Cess for Passenger vehicles is a concern for auto industry. However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles.”

Dr. Wilfried Aulbur, Managing Partner & CEO, India, Chairman Middle East, Head Automotive Asia at Roland Berger

"The budget overall has been muted as far as passenger vehicles are concerned. The charges on luxury vehicles and high capacity SUVs may not dent sales, but clearly, these charges don't support demand either. The same holds true for the pollution cess on various car models.”

Guillaume Sicard, President – Nissan India Operations 

"There is not much for Auto industry in this budget. Infrastructure cess increase up to 4% on passenger vehicles will definitely have an impact on the prices. We do not foresee that to be a major burden for small car buyers but the luxury cars and SUVs will feel the heat. We are still trying to understand the modalities of collection of TDS of 1% on more than 10 lakh priced cars. Further, curbing incentives on in-house R&D spends from 200% to 150% is not very positive. There is no presentation on roadmap for GST implementation, additional Incentives for Electric Vehicles and Hybrids under FAME Scheme and the plan for Vehicle Scrappage scheme which is damper.”

Here's how much more you have to pay on your next SUV or Luxury car! 

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