While there are multiple entrants making headway in the electric vehicles space, the response has largely been tepid due to lack of adequate charging/battery swapping infrastructure and after-sales concerns. Further the infrastructural road and highway projects were stalled because of COVID-19. While the government has come up with new highway projects and also schemes such as one e‑charging kiosk in each of 69,000+ petrol pumps to encourage the use of electric vehicles, the time taken by these efforts to bear fruits appear further prolonged owing to the challenges in the year gone by.
The auto industry seeks support from the government to further propel its growth by temporarily reducing GST rates to 18% from 28% and do away with higher compensation cess rates to spur additional demand in the sector. Removal of restriction to avail input tax credit of GST paid on purchase of automobiles by the business houses still holds its place in the wish list.
In the 2019 Budget Speech, the Finance Minister mentioned that a scheme will be launched to promote the setting up of mega manufacturing plants in sunrise and advanced technology areas, including lithium storage batteries and solar electric charging infrastructure with direct tax and indirect tax incentives. The industry still awaits roll out of a formal policy to help development of the EV ecosystem in India.
Considering car loans are on offer at an all-time low interest rates, especially by public sector banks, the government can also consider expanding availability of tax deduction of interest on loan for EVs to other vehicles. The government could also quicken the much-awaited incentive for a scrappage scheme. This is high on the list of key asks by the sector for many years. It will not only help in meeting emission norms, but also generate new demand in the market.
While fiscal room available will determine whether these demands are met, there is talk of likely introduction of new COVID-19 surcharges or higher income-tax rates for high income earners which would mean lower disposable income in the hands of individuals, and result in reduction in demand for the auto industry.
Auto MNCs are also anxious about the far-reaching impact of the new equalisation levy provisions on e‑commerce transactions, especially its potential applicability on some inter-group transactions in the auto sector. As per general industry terminology, inter-company transactions may not qualify as e-commerce transactions. However, the wide provisions under the law create uncertainty around applicability in various scenarios and clarifications on this new levy will help auto MNCs with much-needed clarity to evaluate impact of and comply with the new equalisation levy provisions.
These expectations, if met, can have a powerful impact on the recovery of the auto sector. Combined with the overall thrust on infrastructure spend by the government, with the above impetus, India’s automobile industry will be steadfast on its path to be the third-largest auto market in the world, and an important pillar for India to achieve its vision to become a US$5 trillion economy.
(The article first appeared on moneycontrol.com on 20 January 2021.)
