Nirmala Sitharaman's Booster Shot For The Struggling Indian Auto Industry

Key Points 

1. BS-IV Vehicles Purchased before 1 of April 2020 will be operational till their registration period
2. The release of Rs 70,000 crore for PSU banks recapitalisation and Rs 20,000 crore for National Housing Bank.
3. All Govt Departments will be able to replace their old cars 
4. Increase in registration fees of two-wheelers and four-wheelers put on hold till June 2020
5. Vehicle Scrappage policy to be revisited soon.
6. Additional 15% depreciation, totalling to 30% on vehicles purchased till 30th March 2020
7. Govts to focus on ICE and EV together, to build infrastructure for components including batteries for export

Finance minister Nirmala Sitharaman on Friday, announced a slew of measures to boost demand for the auto sector. The auto sector has been battling a severe downturn, thanks primarily to a drop in demand and to confusion over some upcoming regulations.

Speaking at a press conference in New Delhi, finance minister Nirmala Sitharaman said that the Bharat Stage IV vehicles purchased before March 2020 will remain operational for the full period of their registration. Sitharaman said she wanted to dismiss speculation that BS-IV vehicles would become illegal to drive after 2020 when BS-VI norms will kick in.

NBFC Crisis has been a major concern for the industry and the release of Rs 70,000 crore for PSU banks recapitalisation and Rs 20,000 crore for National Housing Bank will give banks and NBFCs enhanced liquidity in the system. Moreover, the linking of repo rate to interest rates charged for vehicle purchase would support lowering of EMIs for auto purchases, thereby boosting demand.

Nirmala Sitharaman also said that in order to boost demand in the auto sector, the government was putting off a proposal to increase registration fees of vehicles.

The other major announcement the finance minister made with regards to boosting demand was to do with a ban on buying vehicles imposed on government departments. The ban did not allow departments to buy new vehicles even if it was to replace old ones.

Now, Sitharaman said, government departments will be actively pushed to replace old vehicles and provide a source of demand for the auto sector.

The Minister also spoke about governments intention in rethinking about implementing the “Vehicle Scrappage Policy” A scrappage policy is a government-funded programme to promote the replacement of old vehicles with modern ones. A vehicle scrappage programme is usually intended to stimulate the automotive industry as well as taking obsolete and more polluting vehicles off the road.

For institutional buyers, corporates and businesses, The FM announced the enhanced depreciation cost. An additional 15% depreciation will be provided on vehicles acquired from now till March 2020, taking the total depreciation to 30%.

Besides these, The Minister assured both electric vehicles (EVs) and Internal Combustion Vehicles (ICV) will continue to be registered. And the government's focus will be on setting up of infrastructure for the development of ancillaries/components, including batteries for exports.