Budget 2022: Expectations and Recommendations from the Indian auto industry

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Union Finance Minister, Nirmala Sitharaman is all set to present that Budget 2022 on February 1. The Indian auto industry is expecting some good sops and announcements to push the otherwise slump industry facing issues like chip shortage and periodic lockdowns. We have compiled budget expectations and recommendations from various industry bodies for the government ahead of the budget -

Automotive Dealers

Federation of Automobile Dealers Association (FADA) the apex body for Indian Automobile Retailer has highlighted few issues, which, they say, are hurting the growth of the Indian Automobile Industry and Auto Dealerships at large.

1) Introduce benefits of claiming depreciation on vehicles for Individuals paying Income Tax

• FADA requests the Finance Ministry to allow individuals to account for depreciation. This will not only help in increasing the number of individuals filing their IT return but will also help in igniting automobile demand (especially Two-Wheeler) from individuals and will thus up the GST collection for the government. The Vehicles depreciates for both Corporate as well as Individuals and it would hence be judicial that the Salaried Class should also get the same benefit.

2) Depreciation rate for vehicles

•  FADA requests for reintroduction of Depreciation Scheme which was valid only till 31st March’20 to be further extended for FY 2022-23. Dealer body is thankful to the government for increasing the depreciation rate for all types of vehicles purchased before 31st March 2020 as a temporary measure to revive growth.

3) Regulation of GST rates to boost volumes

• To bring the Industry and Auto Retail Trade back on growth path, FADA requests the Ministry to regulate and reduce GST rates on Two Wheelers to 18% and continue to move our nation to global leadership. It is noteworthy that the 2W is used not as a luxury but as a necessity to travel distances by lower class and rural segment for their daily working needs. Hence the rationale of 28% GST + 2% cess which is for luxury / sin products does not hold good for the Two-Wheeler category.

• At a time, when vehicle prices are increasing after a gap of every 3-4 months due to continuous price hike in metals and various other factors, a reduction in GST rate will counter the price hike and help spur demand.

• The Association believes that the growth in demand and the ripple effects it will have on many dependent sectors will increase the tax collections and in the mid to long term will actually be revenue positive along with getting positivity in the overall consumer sentiment and thereby the overall economy.

4) Reduction in GST rates for Used Cars To 5%

• The rate of GST on used cars is currently 12% and 18%. 12% for vehicles which are sub 4000 mm and 18% for vehicles above 4,000 mm.

• The used car business occupies 1.4 times the size of new car market, accounting for 5-5.5 million cars per annum with a turnover of over Rs. 1.75 trillion. Authorized dealers account for only 10-15% of this trade, which is also the organised sector thus paying taxes.

• In case the used car is purchased from end consumer by the dealer, no ITC will be there to be claimed by the dealer since, neither the tax has been paid under forward charge nor under RCM. In such a situation there will be cascading to the extent of value addition by the dealer.

•  The Association therefore requests for a uniform GST rate of 5 % on the margin for all used vehicles, to create a win-win situation for the Government, Dealers, and Vehicle Owners. With the reduction in GST, it will help the industry to shift from unorganized segment to organized segment thus bringing in more business under the ambit of GST helping in putting brake on tax leakages.

Electric Mobility

The central government has announced several supportive measures to promote E-mobility in the country. The industry has seen accelerated growth in the last few years. However, a lot needs to be done to make the country's automobiles fully electric. Here are some of the expectations of the SMEV (Society of Manufactures of Electric Vehicles) from the upcoming Union Budget 2022–2023:

1) Priority Lending

To create a robust ecosystem for electric vehicles and give a boost to the EV market, the government could look at putting EVs in the priority lending sector. It will help citizens afford EVs at lower interest rates.

2) Inclusion of clean air campaign in Swatch Bharat

The LED and solar campaigns did wonders for the country, and the same can be attempted for EVs also. A dedicated budget could be allocated for the "Clean Air" campaign, which could be integrated under the Swachh Bharat mission to create the next level of cleanliness for not only our homes and dwellings but the air around us. The "Clean Air Campaign" has the potential to raise massive awareness about electric mobility and influence customer attitudes toward adopting electric mobility, thereby making India less polluting and its citizens healthier.

3) R&D in Battery Manufacturing

Unless we work seriously and diligently on EV batteries, we will end up in a situation similar to, if not worse than, our dependence on crude oil. The current level of research is abysmally low, diluted, and scattered. The government could allocate sufficient funds for R & D in a public-private partnership mode with a time-bound objective to create EV batteries that are less dependent on offshore minerals and best suited to the Indian condition. ACC scheme can be suitably amended to incentivise the RnD efforts.

4) Skill Development

As we all know, the abrupt transition to cleaner mobility may pose a serious threat to the large workforce involved in IC engine manufacturing and after-sales service. This can be converted into an opportunity by a large-scale gross national initiative of rescaling our existing workforce as well as entrance into institutes like ITIs and diplomas. A few attempts are on however special focus with specific budget allocation will be required to revamp all the educational institutes and training centers to shorten the time and the agony of a common man engaged in the IC.

5) Export Concessions

Around the world, the craze for bigger SUVs and higher-powered motorcycles is slowly veining towards compact and smaller electric cars and scooters. Thus, wonders can be done in affordable small cars and scooters, just as they are in IC engine vehicles. Some incentives can be extended in the form of subsidies to be enjoyed by domestic consumers for exporting such vehicles to get a global stamp on electric vehicles. This is a large space that Indian industries can capture before international players invade the market with cheaper contraptions.

6) Amendment in PLI Scheme for Automobile and Auto Component

While the PLI scheme will certainly have incentives for the large players, it is also creating an unfair price disadvantage for small & medium-sized EV players in the industry who are not qualifying for the incentives under the aegis of the PLI scheme owing to their size, turnover, and backgrounds. Hence, we request the Government to create a level playing field through amendments in the scheme so that MSME EV players, all the pre-existing and new players can also participate.

7) Citizen Reward Program

The EV customer today has got a good subsidy scheme, to tip his decision of choosing EV over IC engine purchase. It is time that we make EV users proud of their purchase and make them believe that they did something good for society, country, and environment.  A small budget could be allocated for a green point card for all EV owners, like the types of the mileage card of airline companies, which can be used at various establishments and occasions to access fast track services or acquire points for the rewards.

Used Vehicles 

Sandeep Aggarwal, founder, Droom, one the India's leading used car platforms has the following expectations for automobile sector.

1. Digitization

The automobiles sector has undergone tremendous growth and transformation in the past 2 decades. After COVID, we have witnessed that automobile buying and selling is shifting online at a faster pace owing to constraints such as avoiding physical contact and reservations in visiting a physical dealership. We hope that the upcoming Budget 2022 continues to pave way for digitization of automobile industry regulations that increases inter state vehicle sales, shorter time around time for transfer of ownership and lower taxes.

Start Ups

New-age businesses such as online fuel delivery are disrupting traditional business models and excellently adopting technology to unlock opportunities. Dr. Rajiv Mathur, Managing Director, The Fuel Delivery says that the Union Budget 2022-23 should encourage innovation-driven start-ups that can boost Indian economy. 

 1) Boost to innovation-driven startups

Today, almost every item— apparel, groceries, books and stationery, and even fuel can be ordered online at one click. With life becoming more convenient and easier, there is a boom in e-commerce as people are relying on it  for delivery of essential goods, including fuel. Taking a note of the fact that diesel is the most widely used petroleum product in India and accounts for 40% of total fuel use across sectors (such as business houses and IT parks, real estate, transportation, agriculture, manufacturing, mining, and many more), many innovators are disrupting traditional distribution models leading to growth of several startups in doorstep fuel delivery.

Moreover, doorstep delivery of diesel has further led to the emergence of the ‘FuelEnt’, a flagship initiative by the government of India, intended to build a strong ecosystem for entrepreneurs looking to drive sustainable growth. It saves them from the time and hassle of standing in long queues and traffic congestion. It also saves transportation costs and serves as a cost-effective medium for the delivery of goods. The scaling up of FuelEnt solutions will unlock tremendous opportunities to foster innovation and redefine the customer experience. Thereby, the budget 2022-23 is a critical event for the Indian economy, especially the small businesses and startup sector.

Rental & Lease Car Segments

Given that purchasing a new vehicle isn’t feasible for everyone and public transportation is ruled out owing to safety concerns, the natural choice in the past two years has been shared mobility, especially on a subscription basis. Here's what Sakshi Vij, Founder, Myles Cars, a Car rental and Car subscription platform has to say

1) More Clarity on EV Progression

Honorable Finance Minister Smt. Nirmala Sitharaman should look at aggravating the domestic demand by further incentivizing individual and commercial consumption of EV, pan India. The global pandemic has shown that the world wants an alternative for China in the processed goods industry. India must cash in on this opportunity by creating an EV-manufacturing hub. In Budget 2022, we expect the government to boost EV financing and introduce viable options for customers to use them. More EVs should be available in India through preferential taxation for imports. Moreover, there is a need for a simpler access window for startups that can easily solve sustainability and climate change goals with government and policy-making bodies.