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Auto Industry Pushes for Bold Fiscal Reform in Budget to Recover from Sales Slump

Image for Representation

(Image: Reuters)

Image for Representation (Image: Reuters)

The auto industry is also scrapping duty on import of lithium-ion battery cells so that battery packs can be manufactured locally.

In the middle of a prolonged slowdown, the automobile industry has asked the government to take bold fiscal measures to revive the sector that has reported its worst-ever sales-decline in two decades during 2019, industry sources said. In the upcoming Union Budget, the auto industry has sought measures, such as a reduction in GST rates on vehicles and abolition of duty on import of lithium-ion battery cells, to encourage electric mobility.

The industry, which has been facing a downturn for almost a year now, has also sought an incentive-based scrappage policy and an increase in re-registration charges of vehicles to discourage the use of old vehicles. Sources said that the introduction of BS-VI emission norms is a positive step to reduce emissions significantly but the initiative would lead to an 8-10 per cent increase in vehicle cost, leading to enhanced GST collections for government.

"However, this extra cost would lead to a fall in demand. As a win-win situation, we are requesting the government to consider reducing GST on BS-VI vehicles to 18 per cent from the current 28 per cent from April onwards," an industry source said. The decision-making power for GST reduction lies with the GST Council and not related to the Budget directly but this is an important element for demand revival, he added.

The auto industry is also scrapping duty on import of lithium-ion battery cells so that battery packs can be manufactured locally and progressively cell manufacturing can also be established in the country. It would also help in reducing the cost of electric vehicles and aid in accelerating adoption of green mobility in the country, another source said. He added that a formal incentive-based scrappage policy with monetary support from the government as well as manufacturers are required to take old vehicles off the roads and generate demand for new vehicles.

"Incentive in the form of 50 per cent tax rebate in GST, road tax and registration charges are proposed," the source noted. The industry has also sought adequate Budget allocation for the Ministry of Urban Development to support state transport undertakings in procuring buses.

"Robust public transportation will reduce the number of vehicles on the road, thereby will reduce pollution and hence positively impact climate change. This would also lead to reviving demand for commercial vehicles which is very much needed in the current economic scenario," the source said.

Besides, the industry has asked increase in depreciation rate on passenger vehicle and two-wheelers to 25 per cent to have depreciation aligned to the real useful life of the vehicle. Similarly, it has asked the government to permanently withdraw the proposed hike in the vehicle registration fee as a higher fee would further impact the demand negatively.

"Besides, we are seeking income tax benefits on the interesting part of vehicle loan to be provided to individuals purchasing green vehicles," the source noted. The automobile industry recorded its worst-ever sales decline in two decades in 2019, with an unprecedented slowdown hampering vehicle offtake across segments.

According to data released by the Society of Indian Automobile Manufacturers (SIAM) last week, all vehicle segments reported de-growth last year as low consumer sentiments, weak rural demand and economic slowdown took a toll on demand. Overall wholesale of vehicles during the year across categories, including passenger vehicles, two-wheelers and commercial vehicles, saw a decline of 13.77 per cent in 2019 at 2,30,73,438 units as against 2,67,58,787 units in 2018.

This is the worst fall in sales since the industry body started recording monthly and yearly sales data in 1997. The previous lowest was recorded in 2007 when overall sales had declined by 1.44 per cent.