Union Budget 2022-23 | Uniform GST Rate Of 18 Percent On All Automotive Components, Including Tires – Samir Gupta, Continental Tires

Samir Gupta Jan 28, 2022

In less than a week, the direction and strategy for this year will be decided with the Union Budget 2022. The past couple of years has been historical in many ways. The pandemic has forced all businesses to adopt new strategies in the shortest amount of time, and innovate from time to time to ensure business continuity.

The Indian automotive sector has worked very hard to reserve its place among the top 5 automobile markets of the world. This sector contributes 7.5 percent to the overall GDP of the country, according to government reports. However, after witnessing a historic peak in 2018-19, the sector has faced several headwinds due to market conditions.

While the pandemic exacerbated certain market conditions, the last quarter has shown signs of improvement. However, with the onset of the third wave of the pandemic coupled with a shortage of semiconductors, there is some uncertainty about further momentum of growth. The good news is that today we are in a better place to respond to the pandemic than before. We know what the pandemic entails. We know how to address potential issues. We can be prepared.

Taking all the aspects and size of the industry into consideration, the union budget 2022-2023 is very significant for the automotive industry, especially in the current COVID-19 times.

Expected Measures

The critical expectations from the industry are primarily related to tax structures and reliefs associated with it. Several measures announced in the Union Budget of 2021, including the scrappage policy, have helped the industry. However, we still have quite a distance to travel and the support provided in this Union Budget would be critical to how fast we can cover this distance.

The first important expectation is related to Goods & Service Tax (GST). A uniform GST rate of 18 percent on all automotive components, including tires, would be highly beneficial and helpful in bringing down the logistics cost of the industry and thus contributing in controlling inflation.

Specific to the rubber and tyre industry, the severe shortage of locally available natural rubber is adversely disrupting the production cost at tyre manufacturing units even as the demand of tyres is peaking. In order to ensure that tyre production and exports take place in an uninterrupted manner, rationalized import duty of natural rubber needs to be allowed.

Additionally, focusing on the development of the cold chain in India will give a much-needed boost to the agricultural sector, which will also be beneficial for the tyres industry. The Indian government - both at the state and central level - has initiated several programs towards improving supply chain and cold chain facilities over the last few years. We hope to see further focus towards the sector in this budget.

As the government is already focusing on improving the infrastructure and connectivity by building highways, which will naturally support automotive and allied industries. The demand for high-performance commercial vehicles as a part of logistics will extend to the rubber industry as well.

In fact, any kind of growth in the manufacturing sector will help the commercial vehicles and by extension, the truck tyre industry. Automotive and manufacturing sectors form the backbone of the Indian economy and we certainly do see some measures that will encourage both these industries in the Union Budget 2022.

Local tyre manufacturers will also look toward going ahead with the prior decision of the import restrictions on pneumatic tyres in the country. This policy, which was imposed in mid-2020, has definitely helped the industry and we hope to see this grow further.

Lastly, the focus on electric vehicles needs to continue. Policies such as FAME 2 have encouraged the adoption of electric vehicles, particularly in the 2-wheeler segment. The EV 2-wheelers require further R&D, particularly in terms of support towards the development of battery technologies and infrastructure. We also need to look beyond batteries and explore newer technologies to upgrade all parts of the vehicle including tyres.

Previously announced schemes such as Production-Linked Incentive (PLI) have helped the industry bring in the necessary funds and initiate programs for the Indian market which in turn helps in the specific logistics segments, though other automotive segments to be added which will help in further bring down the cost. However, we need to retain the weighted tax deductions of R&D expenditures to encourage further investments in this space.