Some hope for auto industry, if not complete relief

It was only the third time in history that a budget was being presented after a contraction of the economy. And, the first time that the contraction was due to a global pandemic. Context is key for the 2021 Budget for it seeks to pull the economy out of tiring times. It’s reassuring to see an increase in spending for public healthcare, infrastructure, and a sizable Rs 35,000 crore being earmarked for vaccination. Having had to make difficult choices, it’s plausible that the Government chose to focus on needs more than wants.

The auto industry is still recovering from adverse effects of the pandemic, and it is anybody’s best guess as to how 2021 will shape out. However, going by the strong recovery in sales, and the positive sentiment amongst industry players, we believe that the worst is behind us and it’s only going to get better hereon. Passenger vehicle sales in January 2021 increased to 3.04 lakh, a hefty 10% increase over December 2020 and 16% YoY. For the auto industry: the 2021 budget brings with it some hope, if not complete relief.

The Government’s move to ramp up spending (to nearly Rs 2 lakh crore) in production-linked incentive schemes is a good start. This is likely to draw in more global players to an already lucrative Indian automotive market, strengthening the Government’s ‘Vocal For Local’ cause. We have seen manufacturers like Kia Motors, Morris Garages and Citroen make in-roads over the past couple of years, and have global electric vehicle behemoth Tesla setting base as well.

With the voluntary vehicle scrappage policy, we should see a revival in demand. The policy mandates fitness tests at automated centres for private vehicles that are 20 years of age. A levy of ‘green tax’ at the time of fitness renewal will dis-incentivise the use of older vehicles. Commercial vehicle manufacturers too stand to gain from the scrappage policy, where the limit for fitness is set at 15 years. The industry has been given a further shot in the arm with Rs 18,000 crore being earmarked for public buses.

Going forward, the industry would love to see a roadmap on implementation of the policy and the monetary incentive a car buyer stands to gain by scrapping their old vehicles. Owing to the policy, we expect to see stronger demand for used cars which are well within the stipulated age.

There is a conscious push towards cleaner mobility as well, with the Hydrogen Energy Mission. Execution is key, however, if implemented correctly, it would aid the Indian automotive industry to transition seamlessly from relying on fossil fuels to electric vehicles, by providing a sustainable mid-point in the form of fuel cell electric vehicles (FCEV). Manufacturers such as Hyundai and Toyota have hydrogen-powered vehicles in their global portfolio which could be a direct fit here provided we see a stable long-term policy.

The thrust on boosting road, rail and port infrastructure is a step in the right direction enabling lower logistics costs for automobile manufacturers in the long run. We see an increase in demand for personal transport owing to the focus on developing an additional 8,500 km of national highways as well. Recapitalisation of public sector banks that in turn enables increased access to capital at affordable interest rates (coupled with a boost in consumer spending) will benefit the automobile sector.

Our wishlist for the budget included remedies for woes specific to the auto industry that remain unaddressed. Reduced taxes on new vehicles, and higher incentives for electric vehicles under the Government’s ‘Faster Adoption and Manufacturing of Electric Vehicles’ (FAME) policy would have helped bolster demand with more enthusiasm.

It’s just a matter of time before the automotive industry sees a holistic policy that fully addresses its needs and requirements. The 2021 budget seems to be a step in the right direction. Equity markets have stamped their approval already. With steady clear-sighted, pro-growth policies we should see the auto industry shoulder India’s metamorphosis into being truly self-reliant, or Atma Nirbhar.

The author of the article is founder and CEO of CarDekho Group