The Union Budget 2021 is very important since it comes during an unprecedented pandemic. The most significant pain points of the economy are the lack of demand and liquidity. The shrinking market’s impact and the weak demand is evident after the Economic Survey said that the country would experience a current account surplus for the first time in 17 years.
The automotive industry is the key stakeholder of the country’s economy. It suffered extensive sluggishness in the past 10-12 quarters after introducing GST, the new safety norms, insurance regulations, axle, and emission norms. These led to a hefty increase in purchase costs. The industry was waiting for direct announcements to reduce purchase cost and improve customer sentiment
Here are the key points with respect to the automobile industry
- Voluntary scrappage policy. Positive Impact: Low to moderate
- The announcement comes after a wait of over a decade. However, this has to be adequately incentivized. Further, to address the volume of scrap, the matching infrastructure has to be present in the country
- Augmentation of public bus transport services. Positive Impact: Moderate to high
- M&HCV segment was the hardest hit segment of the automobile industry. In the M&HCV segment, buses are the worst hit sub-segment, and its demand recovery is not near. Hence, solid support is required from the government to push demand. In this scheme, the government will provide funds of INR18,000 crore to support the augmentation of public bus transport services. The scheme will enable private sector players to finance, acquire, operate and maintain over 20,000 buses.
- No relaxation of automobile GST. Negative Impact: Moderate to high
- The automotive sector required an instant boost, especially for the commuter 2-wheeler and entry-level cars, decreasing GST from 28%. All the automotive products are currently taxed at the levels of luxury items.
- No direct policy for EVs. It was disheartening to see no significant direct announcement for the promotion of EVs. Many state governments have rolled out their incentive schemes for investment and incentives for EVs. The sector was expecting significant investment in terms of charging infrastructure.
- Rising fuel prices. Negative impact: Moderate to high. From Jan. 31, 2020, to Jan. 31, 2021, diesel prices soared by 20%, and petrol prices have spiked at 14%. Fuel (petrol and diesel) currently attracts a total of almost 70% tax, including state, and central GST, which is playing a spoilsport for the overall economy and demand for automobile products. PSR
Aditya Kondejkar is Research Analyst – South Asia Operations, for Power Systems Research.
