What Are The Experts Saying About The BUDGET 2021

This year, the Auto segment gets some ray of hope from the Union Budget 2021. Though lots of things were left out, still it seems that the government paid special attention to the Auto sector in this budget. Some of the major decision about the Auto sectors includes much awaited New Scrappage Policy, Highway infrastructure work in the different states that will eventually increase the sale of commercial vehicles, Increase in custom duty on some auto parts up to 15%, 100% Tax exemption for foreign investment in infrastructure and Reduction of custom duty on steel.

Experts Reaction on Auto Sector Budget

Rajeev Singh, Partner, Automotive Leader, Deloitte India: “We welcome the announcement on voluntary scrappage policy and it’s likely to increase demand for new commercial vehicle (CV)and Passenger vehicles(PV). Scrappage policy though voluntary will likely become mandatory as fitness certificates will be made mandatory. It's a soft step towards coming up with mandatory. In dearth of proper infrastructure, just the introduction of a fitness certificate may not be enough. The government will also need to build the necessary infrastructure to get this to action on ground. A strong push in Infrastructure building - roads, railways, economic corridors will help boost demand for heavy & medium duty CV’s. With governments higher focus on metro and increase in outlay for Urban transport we are likely to see the much needed demand for buses and smaller vehicles for last mile connectivity”

Vinay Raghunath, Partner and Automotive sector leader, EY India - “The scrappage policy is a much-awaited development where apart from boosting demand in the sector it will simultaneously help reduce pollution and fossil fuel consumption while also enabling re-use of steel/aluminium. An extension of this policy to other aspects (eg- tyre scrappage) may help boost demand in related sectors while also helping India become more Atmanirbhar.”

Pramod Achuthan, Partner and Automotive tax leader, EY India, “Announcement by the Finance Minister on Voluntary Vehicle Scrappage Policy covering personal and commercial vehicles is a welcome step and should encourage demand for newer, less polluting vehicles. Even Government’s resolve to build additional roads, national highways and improve urban infrastructure and public transportation as evidenced by 34% increase in capital outlay for infrastructure will spur demand in the medium to long-term. Further, the rise in customs duty on certain auto parts left out in 2020 budget clubbed with PLI scheme for auto sector appears to be a step towards making Bharat Atma Nirbhar and will have an adverse effect in short to mid-term till India gets self-reliant for those components. Overall, a Budget accelerating pace in the right direction.”

Saurabh Agarwal, Tax Partner, Automotive sector, EY India – “With special emphasis on enhancing domestic manufacturing, 13 sectors have been earmarked by the Government for extended financial support over a period of next 5 years via the PLI schemes. Auto and auto components sector captures a significant share of the pie with one third of the budgets earmarked (approx. INR 57,000 crores) for this sector alone. Additional measures of increase in Customs duty rate on parts of vehicles (such as frames & forks, wheel rims & spokes, hubs, brakes, saddles, pedals & crank gears, etc) from 10% to 15% appears to be an aim towards promoting domestic manufacturing. However, considering the fact that substantial imports by the Auto industry are done from Asian countries while obtaining benefits under various FTAs,

the real on ground benefit would have to be ascertained in the due course of time. Further, the increase in customs duty is likely to lead to increased cost of vehicle manufacturing in short term till the time the manufacturing ecosystem for these components is developed in the country.”

Waman Parkhi, Partner, Indirect Tax, KPMG in India: "Finance minister, while acknowledging immense potential for heavy capital equipment manufacture, and also assured review of the customs duty structure for such goods. Customs duty rates on certain auto parts such as safety glass, electrical lighting and signaling equipment, windscreen wipers, etc. has been increased from 15% from the current rate of 7.5%/10% with an objective of promoting Indian manufacture of goods. 13 PLI schemes for various manufacturing sectors will also positively support such manufacture. Voluntary vehicle scrapping policy besides contributing to lower emissions and improving safety on road would also generate demand for vehicles for the Auto sector." The sharp increase in Capital expenditure by 35% to INR 5.54 lakh Cr would provide the necessary impetus to the manufacturing sector. If the domestic demand picks up further and exports too rise, the fruits of these measures will be reaped in the coming fiscal

Rudra Pandey, Partner, Shardul Amarchand Mangaldas & Co. “The vehicle scrapping policy introduced by our Finance Minister, Ms. Nirmala Sitharaman, in her Budget 2021 speech is a positive step towards supporting the automobile industry, The policy is proposed to be introduced on a voluntary basis, and the intention is to phase out old and unfit vehicles (both commercial and personal) from Indian roads, which will not only result in a reduction in environmental pollution, but will also boost the sales of new vehicles, including the production and sale of electric and hybrid vehicles (which has been a policy concern of the central government). While we will have to wait for the details of the vehicle scrapping policy to be released by the Ministry of Road, Transport, and Highways, it is likely that the policy will provide for certain financial / loan based incentives to be provided to customers who choose to scrap their old and polluting vehicles for newer alternatives. What is also important to note is that the automakers will also benefit from having additional metal from scrapped old vehicles, which may be reused by them and reduce the manufacturing costs of newer vehicles. Ancillary industries such as tyre making companies and spare parts and accessories manufacturers are also poised to benefit from the introduction of this policy. The policy will provide a fillip to the Indian government’s efforts to position India as a global automobile manufacturing hub, as well as benefit global automakers with manufacturing industries in India, including Japanese giants Suzuki, Toyota, Nissan, amongst others.“

Rahul Mishra, Partner, Kearney on Budget 2021 - "The overall budget seems to be targeted to put the automotive industry back on the path of revival and growth. The marquee announcement has of course been the vehicle scrappage policy. As Kearney, when we had supported the design of policy we had clearly envisaged the benefits this policy could deliver to the industry and vehicular pollution. Now that the policy will be a reality after a long wait, the industry should benefit from this. This will however still require the setup and scaleup of scrapping infrastructure in the country. Other

announcements around duty changes especially duty cut in steel, production linked incentives, focus on domestic capability development and the large push on infrastructure spending will ensure an overall uptick for the industry."

L Viswanathan’s views, Partner, Cyril Amarchand Mangaldas “The announcement of the Scrappage Policy is expected to significantly boost the auto industry as also contribute to a clean India. It is expected that this policy would nudge electric vehicles which would also be a boost for manufacturing in India and will trigger investment in clean technology. 

The success of this policy would be felt in multiple fronts, from giving a fillip to the automobile sector, boosting manufacturing in India and also reducing our fuel import bill.”