Budget 2013: Pragmatic approach needed to drive auto industry growth
Tax and regulatory services
Ernst & Young
In the period between April 2012 and January 2013, the overall growth in domestic auto sales was 4.66 per cent compared to 12.24 per cent in financial year 2011-12. The decline was primarily due to high input costs, high interest rates, the ever increasing fuel costs and a decelerating economy.
The Society of Indian Automobile Manufacturers (SIAM), a representative body of Indian automakers, has already announced that its previous forecast of a 3-5 per cent overall growth in FY 2012-13 may require a downward revision. SIAM plans to revisit the forecast once the Union Budget for 2013-14 has been announced later this month. Given this, all eyes are now pinned on what the Finance Minister has to offer to the auto industry.
While the Finance Minister certainly does not possess a magic wand, he could surely address certain the following pressure points:
While the auto output in the country has definitely increased, infrastructure development has unfortunately not kept pace. Improved infrastructure will directly impact the growth of the sector. The Finance Minister should continue the previous year's budgetary allocation towards infrastructure development schemes, and the implementation of such schemes should be tightly monitored.
Automotive manufacturing export hubs
India is nurturing hopes of becoming a low-cost manufacturing hub and production of small cars as well as automotive components will be one of the key areas of focus. With many global original equipment manufacturers (OEMs) eyeing a second manufacturing base outside of China, India has an opportunity to project itself as a primary contender, especially with the available talent pool of skilled resources. The government should additionally focus on expanding the manufacturing hubs, and there could be budgetary allocations to develop such hubs. Proposals for single window and hassle-free clearances will also go a long way to achieve this objective.
Excise duty revision
In the previous budget, the government made an upward revision in the excise duty on all types of cars. With the already increasing fuel prices and the recent partial de-regularization of diesel prices, the industry is hopeful that these be rolled back to provide some relief to the industry.
Clarity on GST
The goods and services tax (GST) was proposed by the government to negate the cascading effects of multiple taxes in the system. However, there is no clarity on when it will be implemented. A clear roadmap for the implementation of GST is necessary to revive industry sentiment.
In the period between April 2012 and January 2013, sales of commercial vehicles fell by 0.37 per cent compared to a growth of 18.20 per cent in the financial year ended March 2012. In order to boost the demand for commercial vehicles, the government could introduce a limited scheme of granting an accelerated tax depreciation of 50 per cent per annum for vehicles purchased during a specified period. The government had introduced a similar scheme in the year 2009, which met with a positive response.
A pragmatic approach by the Finance Minister to deal with the issues faced by the industry will provide the much-needed relief to the auto industry which is witnessing a sluggish demand.
( The views expressed here are personal.)