We assess the impact on the Automotive and Manufacturing Sector
The automotive and manufacturing sectors have significantly slowed down due to the pandemic, not only in India but globally as well. Primarily, due to the semiconductor shortage and the rise in commodity prices. OEMs and suppliers of component and ancillary products were eagerly awaiting some fiscal relief or policy support. 80% of the local auto parts manufacturing done by MSMEs may see a glimmer of hope within the budget.
Finance Minister Nirmala Sitharaman set the course for a green economy with a futuristic policy for EVs or electric vehicles. The big bazooka allocation of capital expenditure of Rs. 7.5 lakh crore signals good news for the sector. [box type=”info” align=”” class=”” width=””]The budget seemed to target bridging the rural-urban with its Amrit Kaal roadmap for the economy.[/box]
Indian automakers were impressed with initiatives for digitization, electrification, and the push to promote ease-of-doing business. As reviews of the Union Budget continue to flow, with industry experts shedding light on the greater impact on macro and micro level within the economy. This article culls out the major announcements and its impact on the sector.
Major announcements
- It lays the groundwork for the economy over the next 25 years. It touches upon 4-wide reaching priority areas covering infrastructure, inclusivity, productivity and investment.
- EODB 2.0 fosters productivity enhancement and investment by expanding the single-window portal (PARIVESH)
- Significant automotive and manufacturing push due to expansion of National Highways network by 25,000km in 2022-23.
- Provisions for EV market may help a shift towards clean technology, public transport in urban areas
- Battery-swapping policy and inter-operability policy in the future, will encourage private sector players to move towards a sustainable and innovative business model
- A possible zero fossil-fuel policy that allows special mobility zones for clean technology vehicles
- Additional allocation of Rs. 19,500 crore under PLI for the manufacture of high efficiency modules
- Rollout of the Raising and Accelerating MSME Performance programme which has an outlay of Rs. 6,000 crore over the next five years. This will help MSMEs improve their access to credit and markets. Revamping the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) scheme is also on-the-cards.
- Increasing import duty on braking systems, electronic and engine parts which include windscreen wipers, lights etc. from 7.5% to 15%, thereby supporting local manufacturers of components.
What does this mean for the sector:
- PM GatiShakti – Seven engine approach to enable the development of world-class modern infrastructure thereby empowering overall manufacturing
- Extension in concessional tax regime will aid the future of manufacturing
- Removal of the exemption on items that can be manufactured within the country and providing concessional customs duties on raw materials that go into the manufacturing of intermediate products would be a key step in achieving the objective of “Make in India”
- A comprehensive review of duties would simplify the customs rate and tariff structure particularly for the industries such as metals, textiles, thereby minimizing disputes
- Import of capital goods in industries such as textile, power, petroleum, leather, food packaging etc. will be costlier now, underscoring the need for examining other duty saving options
- Retrospective amendment in GST provisions can lead to avoidable litigations and costs
Despite these measures, no rationalization of GST on automobiles and no relief in personal income tax may not encourage the revival of consumption much to the dismay of automakers and manufacturers.
[author title=”” image=”http://”]- ET Edge Insights[/author]
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members
Reference: KPMG India: https://assets.kpmg/content/dam/kpmg/in/pdf/2022/02/automotive-and-industrial-manufacturing-budget-2022-23.pdf
