Impact Of Government Policies On The Auto Mobile Industry

Rajat Mohan Mar 26, 2021

Every Industry was impacted by the wave of covid. The Automobile Industry which was already facing an unparalleled slowdown took a bigger hit due to this pandemic. Automobile Industry had an undesirable year due to Covid although it has started showing recovery in 2021 and has been strengthening further by the announcement of Budget 2021. The government has introduced schemes to strengthen and give a much-desired boost to the Auto Mobile Sector. The long-awaited Scrappage policy is announced and much more is there in the Budget 2021 for the automobile sector. Although there are some big misses, the Electronic Vehicle section is missed, no announcements are made in regards to the Electronic Vehicle Sector. Custom Duties on Auto Parts are raised.

Curbing air pollution and increase in customs duties of auto components are the main highlights for the automobile industry in this year’s Union Budget.

Few key changes by way of Budget 2021 in respect to the Automobile Sector are as follows.

Voluntary Vehicle Scrappage Policy.

Finance Minister through the Budget 2021 introduced the economy to a new voluntary scrapping policy for old vehicles. This policy is announced to keep a check and eye on an old vehicle to keep their Air pollutions level under control. Vehicle holders would have to undergo a fitness test. One would only be allowed to drive after their car is declared fit for Driving. If Car is declared unfit, owners would have to phase out their Vehicles.

As per data available with the Federation of Automobile Dealer Association (FADA), around 37 lakhs commercial and 52 lakhs private vehicles are eligible for voluntary scrapping considering 1990 as a base year. If this policy is executed mannerly then it will gradually and systematically phase out old unfit vehicles and will eventually generate demand for new vehicles, resulting in a boost of the Auto Mobile Industry.

Change in Basic Customs Duty Rates of Parts of Automobile Industry

The rate of select auto parts has been raised in the budget 2021 from 10% to 15% which will put the manufacturers who import these materials in a disadvantageous position, but on the contrary, it could promote to local Automobile components industries. On the other hand, custom duty on import of steel has been reduced to 7.5%. This will help the struggling MSME, sector to bring down its cost

Investments in Infrastructure Projects

In the budget, 2021 Allocation of 1.18 Lakhs crore has been announced for Ministry of Roadways transport and Highways. The government intends to carry out the building of highways of 8500 kms by March 2022. This step by the government will eventually generate demand for the commercial vehicle industry and construction equipment sales. It will also eventually result in better employment for a rural and wage-earning community in the country.

Acquisition of Over 20,000 Buses

It was announced in the budget that a new scheme will be launched at a whopping cost of Rs, 18,000 Crores to support the augmentation of public bus transport services.

This will facilitate an introduction of various public-private partnership (PPP) models to enable private sector players to contribute in the financing, acquire, operate and maintain 20,000 buses. It will boost the automobile sector, provide substantial growth to the economy, create employment opportunities for youth in the automobile sector.

Missed Areas of the Budget, 2021

The Budget 2021 however missed on the areas which were highly expected by the Automobile Industry. No announcement regarding GST reduction specially to offset the increase in prices due to BSVI Vehicles which was highly anticipated.

Major Foreign Companies were expecting announcements in regards to Electronic Vehicle but it was disappointing to see no major allocation/ announcement for the promotion of Electronic Vehicle.

Various state governments have rolled out their incentive scheme for investment and incentives for buying Electronic Vehicles. The sector was expecting significant investment or policies in terms of charging infrastructure.

Surging Fuel Price: Fuel (petrol and diesel) currently attracts a total of almost 70% tax including cess, state, and central GST which forms the major part of the cost of the fuel. The surge in the prices of fuel plays a spoilsport in the demand for the automobile industry.

AMRG Take

This Budget has been mostly welcomed by the automobile Industry. Auto Scrappage Policy was demanded by the industry for a long time and now has been finally announced. This will cause millions of vehicles to go off the roads resulting in the creation of demand of new vehicles. It ensures the overall increase in production for this sector and thus eventually helps in creating employment for the youth.

The government decided to invest heavily in road infrastructure and the acquisition of buses will lead to overall demand and growth of public sector transports, thus creating demand for the commercial sector of the automobile industry.