Budget 2023: Expectations and Recommendations from Luxury Auto Industry ft. Mercedes-Benz

Budget 2023: The luxury auto industry has seen a double-digit growth in CY 2022, primarily riding on new products, a positive business environment, and scaling up of businesses in a post-pandemic world.

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The Union Budget 2022-2023 was built on the vision laid out in past budgets and projected an outline for steering the nation towards a sustained high-growth trajectory in the coming years. With the budget, the Government had a clear and sharp focus on bringing growth back to the economy and the current state of our economy is a testament. The Union Budget 2023-24 is being announced at a crucial point where we are looking at multiple challenges comprising global slowdown in demand, continued supply chain woes, and geo-political uncertainties.

Despite these headwinds, according to SIAM, India surpassed Japan in auto sales and became the world’s third-largest auto market, underlining both India’s credentials as the fastest-growing economy and the high potential of the auto sector. Considering the Indian automobile industry contributes 7.1% of India’s GDP and 49% of its manufacturing GDP, calibrated steps must be taken to maintain the steady Industry growth trajectory.

Specifically, from the luxury automotive industry's point of view, it is important to understand the recent market trends and developments to rationalize the requirements from the Union Budget 2023-24. The luxury volumes have seen double-digit growth in CY 2022 compared to last year, primarily riding on new products, a positive business environment, increased corporate earnings, and scaling up of businesses in a post-pandemic world. 

It is interesting to note two trends that we have witnessed during the period, which include the Top end vehicles becoming the fastest-growing segment and a rising share from salaried and professional buyers. An example that can help better understand is that in pre-Covid 2018, Mercedes-Benz’s Top-End Vehicles priced above Rs. 1 crore used to account for 10-12% of our total sales and that number has now jumped to 22% in CY 2022, with growing demand from emerging markets.

In fact, we have ramped up capacity but despite improved output, the demand is still outpacing supply. Additionally, with the industry transitioning to electric mobility, I believe the luxury car segment will remain at the forefront of this EV adoption. We anticipate the luxury car market to sustain the demand and grow at almost double the rate of the mainstream car market.

Infrastructure development to help drive growth

The significant demand we have seen for luxury cars coming from across the length and breadth of the country is also attributed to the government’s sharp focus on the infrastructure sector over the last decade. In last year’s budget alone, an investment of Rs. 20K Crore was allotted under the ambitious Gati Shakti initiative that focuses on 7 growth engines, including building the road transport network, to revive the automotive sector.

The overall improvement in the national highway network and road conditions both within states and inter-state has worked as an impetus for the further penetration of the luxury car market. We expect the Government to continue capex on infrastructural projects. Continued government spending on infrastructure projects will further propel the demand for both passenger cars including luxury cars.

Policies to support Electric Mobility

There is a tremendous effort to create a sustainable and electric future, both by the government and OEMS. We appreciate the Indian government’s vision and commitment to promoting green mobility. So far, the reduction of GST, boosting charging infrastructure, and state governments waiving road tax on EVs, together, are steps in the right direction.

Luxury brands and Mercedes-Benz in particular, are contributing in our own way to develop the EV sector with a growing portfolio of EVs, accelerating domestic production, sensitizing consumers, and also supporting in setting up charging infrastructure. The success of EVs is buoyed by the lower GST on EVs along with the state governments lowering registration taxes on EVs. So, the combination of those two makes EVs more affordable and can lead to faster adoption. 

 We expect 25% of our India sales from EVs in the next 4 years. To push for green mobility, the policies encouraging e-mobility adoption should be long-term, steady, and continue till the industry gains critical mass. Further, incentives to promote domestic production of electric vehicles, reduction of import duties on raw materials, an extension of subsidies for EVs under the FAME-II scheme and bolstering charging infrastructure are a few more steps towards creating a conducive ecosystem for EV transition. 

Looking ahead 

The Indian economy has been resilient and past budgets have furthered India’s aspirations of becoming a self-reliant growth-oriented economy. With all eyes on 1st February 2023, the auto industry is optimistically expecting a growth-oriented budget with a focus on infrastructure development and e-mobility. 

This article is authored by Santosh Iyer, Managing Director & CEO, Mercedes-Benz India. All views are personal.