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The Budget 2018 just presented by Union Finance Minister Arun Jaitley did not have a massive impact on the automotive industry at all. However, there were key highlights for automotive industry which touched upon fuel prices, luxury car prices, and urban infrastructure and highways. Here are the key highlights from the Union Budget 2018 for the automobile industry.
Fuel Prices Reduced
The union government in its Budget 2018 has cut the basic excise duty on petrol and diesel by Rs 2. It also has abolished additional excise duty on fuel by Rs 6. While this might be a welcome change, do not rejoice, petrol prices are expected to remain the same as a new road cess has been introduced in the 2018 Budget of Rs 8 per litre.
With the global crude oil price moving towards $70 a barrel, the Oil Ministry had requested the Finance Ministry to intervene to cut the excise duty on petrol and diesel in the budget. However, the Budget 2018 has not significantly impacted the prices of petrol and diesel in India.
Luxury Car Prices Increased
While the luxury car industry was looking forward to a cut in the Goods and Service Tax (GST) on luxury cars, the announcement in the Budget 2018 has led to an increase in luxury car prices. There was no direct reference to hike in prices of luxury cars in the union budget for 2018; the government has increased the customs duty on luxury items.
Luxury items include cars as well. The excise duty on Completely Knocked Down (CKD) vehicle kits has been increased from 5 percent to 15 percent. Additionally, there is a 5 percent increase in excise duty to 25 percent on Completely Built Unit (CBU) vehicles.
This means that the increase in duty will reflect on the market price of luxury cars. As we know most of the luxury cars are either CKD or CBU, the prices of luxury cars are bound to increase and will be passed on to customers.
Urban Infrastructure And Highways Gets A Boost
The government has allocated a massive budget for public transport in India. Rs 11,000 crore has been allocated for Mumbai's rail network and another Rs 17,000 crore for Bangalore Metro rail. Also, there is the plan to complete the 9000km of national highways by the FY 2019 and 35,000km under the Bharatmala project at Rs 5.35 lakh crore.
With the allocation of funds to improve national highways, it is bound to have a positive impact on the car and bike industry; people will see value in personal transportation and increase the sentiments towards purchasing new vehicles. Even the commercial transportation industry will benefit from the increased connectivity.
Corporate Tax Reduced
The corporate tax for micro, small and medium enterprises (MSME) was reduced to 25 percent from the existing 30 percent, and this applies to companies with a turnover of over Rs 250 crore. The MSME account nearly 99 percent which file returns, hence this is good news for this industry translating into higher profits.
Many of the MSME in the automotive industry manufacture spares and parts for cars and bikes and with the decrease in the corporate tax, the could decrease in the cost of manufacturing; however, it is to be seen if automakers will pass on the benefits to customers.
Sops For Electric Vehicles
The most significant disappointment in the Budget 2018 is for the electric vehicle (EV) industry. With the Indian Government looking to go all-electric vehicles by 2030, there were more disappointments than celebrations. The industry expected the GST rates of EVs to reduced, and this was in the hope of incentivising the faster adoption of electric mobility (FAME) in India.
The Society of Manufacturers of Electric Vehicles (SMEV) had proposed to cut 5 percent of the GST rate on all-electric vehicles and electric vehicle subsystems for the Budget 2018. However, there was no announcement towards EVs or the infrastructure development for EVs.
Automobile Industry Reactions
The luxury car manufacturers were not very happy about the increase in excise duties.
Mr. Rahil Ansari, Head, Audi India said, "For the luxury auto sector, the Union Budget 2018-19 is disappointing and is against the spirit of partnership. As manufacturers, we have a core social responsibility towards our workforce and the dealer network."
However, he did welcome the move on investments in infrastructure and rural electrification, he added, "Lack of concrete measures for government's ambitious E-mobility project is surprising. However, investments in infrastructure and rural electrification are a welcome move as it will have a long term positive impact for automobile sector."
Roland Folger, Managing Director & CEO, Mercedes-Benz India added that the development is unfortunate saying, "The increase in the basic customs duty of auto parts, accessories and CKD components varying from 5% to 10%, clubbed with the new Social Welfare Surcharge at 10%, at a time when the auto industry is reviving, is unfortunate, and comes as a surprise. We believe it is going to impact the auto industry, the consumers and is also against the spirit of ‘Make in India'.
"The auto industry ended 2017 on a positive note, where it grew despite multiple policy disruptions in the previous year; but the customs duty hike is likely to reverse the growth trend. The automobile industry is already subjected to one of the highest rate of taxes under the GST regime, and with the successful GST implementation and the Government's GST rate rationalization step in the recent times, the auto industry was expecting the Government to formulate policies and take decisions that would create demand, create additional jobs and help the industry to grow."
"As the overall costs due to various duty increase is imminent, we are left with no option but to pass on the resulting increase in price to the customers. We want to sustain and continue with our development of innovations and technologies, in introducing world-class products with unmatched safety standards, and also in our people and resources."
Thoughts About The Key Highlights For Automotive Industry In The Budget 2018
The automobile industry sees no respite from the present GST and cess rates, the luxury car prices have been increased and the electric vehicle have no mention in the budget 2018. That said, the budget 2018 was expected to cater to the agriculture sector rather than other industry.
We expect the government to formulate a policy for electric vehicles which is the future on mobility.