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Expectations of Automotive Industry from the 2022 Union Budget

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With few days left for the 2022 Union Budget, the automotive industry is expecting new changes and support from the government, which will help in speeding up the recovery process and facilitating growth of the automotive industry.

Half of India’s industrial GDP (7.5% of the country’s global GDP) is contributed by the Auto sector. After the robust growth recorded in FY 2018-19, the automotive industry started declining in FY 2019-20, due to the adaption of BS-6 emission norms, which was expected to recover in the next FY. But in March 2020 COVID-19 hit India, and the auto sector started affecting in April 2020. Finally, when the industry started showing signs of recovery in the third quarter of FY2021, the second wave hit harder along with the global semiconductor shortage, the automotive industry again declined. Due to the chip shortage, the Indian passenger vehicles industry lost about 500,000 units of sales in FY22. As a result, the customers had to face high prices, long delivery times, and delayed vehicle launches.

Infrastructure for electric vehicles

With the introduction of electric vehicles in India and skyrocketing fuel prices, consumers are now in a dilemma of whether to opt for an electric vehicle immediately or postpone the plan. One thing that affects the adoption of electric vehicles most is the lack of robust EV infrastructure in India. Major automotive manufacturers are expecting new policies, subsidies and new regulations which will help in developing the EV infrastructure in India and promote the use electric vehicles in India. Apart from EVs, government should also promote renewable fuel options. On the other hand, many investors are also interested in investing in EVs and other mobility providers.

FAME II subsidy

Electric Vehicle manufacturers and charging service providers are hoping that the government will extend the scheme beyond 2023. The Electric Vehicle manufacturers who build and operate in the low-speed segment also want the government to extend the FAME II benefits to ‘Low-Speed EVs’.

Tax structure

With major automakers and consumers pointing out the high tax rates for cars in India. Over-time, the length of hatchbacks in global markets has increased from 3900mm to 4035mm, major automakers had to cut short the car’s length or abort the launch of facelift versions in India, to receive the sub-4-meter tax incentive. The industry and consumers are expecting the government to make changes to the existing tax structure.

GST rates on used vehicles

The automotive industry is also hoping to see the GST rates for used cars lowered to 5 percent. Currently, a sub-4-metre car carries a 12 percent rate, while other cars (over 4-metre length) carry 18 percent. This will reduce the buying prices of a used car and also encourage more car buyers.

”The Association requests for a uniform GST rate of 5 % on the margin for all used vehicles, to create a win-win situation for the Government, Dealers, and Vehicle Owners. With the reduction in GST, it will help the industry to shift from unorganized segment to organized segment, thus bringing in more business under the ambit of GST helping in putting a brake on tax leakages.” FADA said.

Reduction of GST on EV components

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With the rise in demand for electric vehicles in India, Automakers want a reduction of GST and import duties for the EV components which are meant for the production of electric vehicles. Which will thereby, reduce the price of long-range electric vehicles and enhance the adoption of EVs in India.

PLI scheme

Major OEMs are seeking the government to reintroduce the production-linked incentive (PLI) scheme for the investment allowance at 15% for manufacturing companies that invest more than Rs 25 Crore in plant and machinery. Automakers are also expecting support policies dealing with semiconductors and battery cells.

The production-linked incentive (PLI) scheme for the automobile sector aims to provide impetus to a greener future and is also expected to make the industry self-reliant and globally competitive

– Toyota Kirloskar Motor

Here are the budget expectations and recommendations shared by experts from the automotive industry.

Martin Schwenk, Managing Director & CEO, Mercedes-Benz India

“We expect the Union Budget to have a holistic growth perspective for the automotive industry, by helping to create consumer demand and growth. This budget should look at the existing taxation structure, offer relief and provide necessary stimulus for creating customer demand and subsequent growth. With increasing focus on developing the EV ecosystem, we also expect long-term stability in the existing e-mobility policies. We expect the current benefits to the customers related to GST to stay, thus encouraging more customers to adopt e-mobility. In addition, we also expect an increased government spending for developing the charging infrastructure, in context of a rapid growth forecasted in the EV segment in India,” Martin Schwenk, Managing Director & CEO, Mercedes-Benz India.

Government must declare EVs for the commercial car industry as a priority sector, implement First Loss Guarantee Scheme for the sector and ensure that the public sector banks and financial institutions offer easy finance with minimal margin money requirement at low interest rates for EV fleets,” Rajiv K Vij, Founder, Plug Mobility.

Satyakam Arya, MD & CEO, Daimler India Commercial Vehicles

The budget should consider that COVID is not over yet. The likelihood that Omicron may influence Q1 of FY2022 is a reminder to all of us that there could be waves in the future as well. The good part is that we have learned quite well to live with the pandemic, but it is still affecting business and livelihood in one way or the other. This year, the aspiration is to see a strategy that can give a renewed thrust and a much-needed impetus to the manufacturing sector to help continue the spirited performance, some sections of the industry have shown in 2021. PLI and RODTEP are great steps in the right direction and the aim going forward should be to simplify the schemes and focus on the benefits spreading across the industry, in addition to the bigger players. High fuel prices are affecting livelihood, there is a substantial rise in commodity prices and the general cost of living has risen noticeably. This needs a strategic solution rather than a tactical one. While IT and ITeS sectors are booming, infrastructure-related projects and the real estate sector seem to be on an upward trend since last year, and this uptick must be encouraged further. The Indian economy might be facing challenging times currently, but this would also be the right time for the Government to further unleash the potential of Global Capability Centers, MSMEs and Start Ups. In the long term, this can shape India’s future as an “Innovation & Invention capital of the World”, which will also benefit the manufacturing industry from all aspects. India has the potential to achieve the highest rate of economic growth in the coming years, as the entire world comes out of Covid, and a budget that focuses on unleashing that potential, could be a game changer for all of us. Mr. Satyakam Arya, MD & CEO, Daimler India Commercial Vehicles.

The government has been taking significant steps to promote electric and safe mobility. We expect some relaxation for the research and development of new technologies. This will further motivate OEMs and automotive suppliers like us to invest in innovations and technologies for the countryPrashanth Doreswamy, President and CEO, Continental India.

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