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Narendra Modi government’s first Budget: Boon or bane for auto industry

17 June-2014: Within a few weeks from now, Union Budget 2014-15 will be tabled before the Parliament. The budget will be first major economic standpoint from the newly formed government. Earlier this year, the auto sector was gifted with the excise cut relief in order to stabilize the reeling industry.

Narendra Modi government’s first Budget: Boon or bane for auto industry

Narendra Modi government's first Budget: Boon or bane for auto industry

The same tax relief will come to an end this month. The newly formed government will most probably be retaining the decision of the previous government as a measure to recover the slump in the sector. The relief was on small passenger cars, two-wheelers and commercial vehicles from 12 percent to 8 percent while big vehicles like SUVs got respite from 30 percent tax cut to 24 percent.
The BJP led NDA government and the new Finance Minister, Mr. Arun Jaitley will have to take decision whether to stick to the previous resolution or not but as per the recent statement, a government official said that the relief provided to the automobile sector will remain intact. He also said that the past two months have not been favorable for the sector and it would be difficult to provide input given the hard fiscal consolidation the new government has to carry out. So the best option would be to continue with the earlier concessions.
The Society of Indian Automobile Manufacturers (SIAM) in its pre-budget memorandum has already requested for the retention of the tax cuts. The organization also asked for bringing down excise duty to 24 percent on all vehicles except the smaller cars. According to the official figures, approximately one-fourth of the entire manufacturing GDP is contributed by automobile sector which also generates 18 percent of the gross excise revenue. Altogether, the automobile industry feeds about 19.5 million people in the country from direct and indirect sources.
Besides this, the Federation of Automobile Dealer Association (FADA) also called for the retention of the same excise sops in the upcoming Union Budget. The organization gets a step further from SIAM demanding to reduce the duty to 12 percent on all vehicles irrespective of their size and engine capacity. And they have already submitted their request to the honorable Finance Minister a few days back. Moreover, looking at the current state of the auto industry, they have also requested for some other tax reliefs in the sector such as increasing depreciation allowance on passenger cars to 33 percent across various segments.
If we cast a glance at the recent sales stats, it was a mixed bag affair where Maruti Suzuki and Hyundai saw increase in their sales by 16 and 12 percent, Mahindra & Mahindra, the largest SUV maker saw a drop of 18 percent and Tata Motors went down by 17 percent in May 2014. However, in the same month, overall domestic passenger car sales improved by 3.08 percent while commercial vehicles sales were down by 16.3 percent. After two years of rigorous downfall, Indian auto sector is now showing early signs of improvement but the weak monsoon this year could make its upward way a little tricky. Low monsoon means less demand from the rural areas of the country which will eventually affect the overall sales. The buyers also refrain by inflation and high interest rates in the third biggest economy of Asia.
The unprecedented slowdown in the sector is due to lack of appropriate demand, low response from export markets, high interest rates and sky rocketing fuel prices. The BJP’s blunt statement of ‘acchey din aane wale hain’ during the election campaign will be undergoing the first litmus test as snail pace economy was one of the factor that expelled the previous government. After the electoral mandate, the expectations of the people of this country have naturally roused. In a recent statement, Prime Minister said that he would be taking some harsh decision to restore the economy and boost country’s self-confidence. The finance minister also states in his blog that we all have to commit ourselves to the short term discipline in order gain long term benefits that would eventually strengthen the economy of the country. Let’s hope this Union Budget could come up with some goodies for the auto sector.

(Input source: Financial Express)

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