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Auto industry expects GST cuts and EV push from the interim Budget 

Fortune India , Jan 22, 2019

As the government prepares the much-awaited interim budget, various stakeholders in the country’s automotive industry have put forth their expectations. The auto industry sees this as an important budget in the run up to the 2019 general elections.

The Automotive Component Manufacturers Association (ACMA) recommended a uniform GST rate of 18% on all auto components and more encouragement towards funding of technology development and acquisition in the country. The industry has significant aftermarket operations and is “plagued by grey operations and counterfeits due to the high 28% GST rate,” according to ACMA.

“A moderate rate of 18 percent will not only address this challenge but will also enhance the tax base through better compliance,” said the association.

ACMA also emphasised on the reduction of import duty on aluminium and steel. Steel and aluminium alloys attract basic custom duty of 15% and 10%. The sector, largely dominated by Micro, Small and Medium Enterprises (MSMEs) is grappling with the high cost of raw materials. Reducing customs duty on raw materials, especially steel and aluminium alloys, which account for over 60 percent of the industry’s inputs, will enable the sector to deal with increasing costs, ACMA said.

“We anticipate the forthcoming Interim budget to uplift the market sentiments which will allow for growth and development of the domestic auto and auto component sector. With the entire auto industry undergoing a technological transformation on the front of emissions and safety, enhancing spend on R&D and creating infrastructure for innovation are of utmost criticality for the auto component industry to stay relevant,” said Vinnie Mehta, director general, ACMA.

“Facilitating new product development through a technology development and acquisition fund as also enhancing the rate of weighted deduction on R&D spend are a need of the hour,” he added.

For the Society of Manufacturers of Electric Vehicles’ (SMEV) director general Sohinder Gill, the budget is expected to bring some clarity on electric mobility, the policy framework for which is long overdue. Gill expects the budget to allocate at-least ₹20000 crores to be spent in next two years and target at-least 1 million electric vehicles in the top 10 most polluted cities.

“Electric mobility needs stable and long term policy support, concentrated dose of customer incentives and massive awareness campaign to reach a target of 30% EVs by 2030,” Gill said.

He also said that the second phase of FAME [Faster Adoption and Manufacturing of Hybrid & Electric Vehicles] India scheme for promoting electric mobility and alternative fuels by the government must be announced soon.

“FAME 2 must be announced with a six-year plan and time-bound implementation. Making electric vehicles (EVs) and infrastructure an integral of the Smart City project will help a lot; The government should give more thrust on e-mobility under the smart city project which is missing, currently,” Gill added.

“The government should set up a framework to encourage PPP model in services like bike and car sharing through which the required infrastructure support for electric can be created.”

SMEV also recommends a notional green cess on all internal combustion (IC) engine vehicles to create this corpus rather than dipping into the exchequer.

Other industry trackers like the Federation of Indian Chambers of Commerce and Industry (FICCI), have appealed to the government to reduce corporate tax rates across the board to 25%, irrespective of company turnover. Auto experts feel that a lower corporate rate will conserve cash for the companies. FICCI also recommends a revision in tax slabs for common tax payers which will enhance their disposable income and boosting demand for consumer items like vehicles.

The industry body also recommends cuts on excise duty on compressed natural gas (CNG). “It is recommended that CNG (conversion of Natural Gas into CNG) be exempted from central excise duty. This will promote usage of this environmentally friendly fuel in domestic and commercial transportation sectors,” FICCI said.