Budget 2022: Automobile industry seeks rationalization of rates, other benefits.
The auto sector in India, which is one of the largest contributors to GDP, is once again hoping for significant and productive reforms in the next Budget.
Since the epidemic hit the economy in 2019, the auto industry has been in an unfortunate situation. Furthermore, the global disruption caused by EVs has yet to be assessed in terms of traditional automobiles.
The Union Budget 2022, which is set to be announced by Finance Minister Nirmala Sitharaman on February 1, 2022 is expected to bring much-required light to the automobile sector.
The auto sector in India is one of the top contributors to GDP, is once again pinning hopes on the upcoming Budget for some strong and fruitful reforms.
Following, the COVID-19 pandemic the auto sector has been grappling with rising material prices, shortage of semiconductors, low sales volumes and thus now needs reforms for a vigorous recovery ahead.
The government has introduced multiple reforms to support the sector in past, but not much has reflected on the manufacturing and sales in the past two years.
Besides, there is the worldwide lack of computer chips that are constraining auto organisations to cut production.
Government focussed reforms like the production incentive scheme (PLI) and for auto & advanced chemistry cells (ACC) PLI scheme has provided an opportunity to make Bharat self-reliant by way of manufacturing products of advanced automotive technology within the country and also help in making the country an export hub for the world market.
Following the COVID-19 pandemic, the auto sector has been grappling with rising material prices, shortage of semiconductors, low sales volumes and thus now needs reforms for a vigorous recovery ahead.
Considering, the government has laid stress on made-in-India products, it is very much predictable that there shall be a plan of the phased increase in the custom duty rates on AAT products and ACC.
Thus, the industry seeks the rationalizing of the rates at 18 per cent, which shall act as a breather to this long pending issue and shall set a positive upward growth tick within the industry.
Currently, in this pandemic era, the chances of the government accepting such a proposition appear to be less as it needs revenue to fight the problems caused by the pandemic.
However, even if an announcement is made in this budget to express intent to resolve this conflict in classification, there may be a positive impact on the industry.
Another important reform that the auto industry is looking forward to, is an increase in the basis of the RoDTEP rate which is a refund granted against exports from India.
The industry is of the view that the current RoDTEP rates notified for the auto sector are not enough to cover the non-creditable taxes which are getting built as a cost in the product being exported outside the country.
The chances of the industry getting increased rates appear to be low in the upcoming budget.
In the year 2022, we expect the auto industry to see an accelerated transition to the EV sector which is expected to increase year on year, as India moves towards achieving its target of net-zero carbon emission and greener fuels.
Considering, the government has also shifted focus on the EV sector, Budget 2022 provides an opportunity to bring out changing reforms to boost to EV sector. Currently, an EV is not the first choice for any consumer primarily because of the higher costs associated with it and the lack of infrastructural arrangements.
In nutshell, unlike Budget 2021, this time the government may use the opportunity to outline reforms focusing on the long-term strategy for the automobile sector which surely can lead to a significant increase in the demand for vehicles in all segments.
This would enable the auto sector in contributing to the economy especially during these turbulent times of pandemics.
(The author is Founder and MD at Big Boy Toyz.)