Budget 2013: A Balancing Act

Dear friends,

Given the fiscal situation made worse by the economic slowdown & external factors and the Damocles’ sword of downgrade by international rating agencies hanging over head, the Finance Minister had limited options while presenting the Union Budget 2013.

Ever since his assuming charge as the Finance Minister for the second time under UPA Government in August 2012, the intent towards fiscal consolidation through a reduction in fiscal deficit has been a key area of focus for Mr Chidambram. The series of measures initiated, of late, including gradual move towards market prices for diesel and other subsidised fuels, are in line with his renewed emphasis on fiscal prudence.

While, by and large, imposing no new taxes, the Budget has increased excise duty on SUVs from 27 per cent to 30 per cent. 

There are also other minor dampeners like increase in surcharge from 5% to10% on Indian companies and from 2% to 5% in the case of  foreign companies, for a limited period of one year though, as also the increase in surcharge on dividend distribution tax to 10% from 5% earlier. I feel that these additional taxes could have been avoided at this stage, when the industry is faced with downturn. Rather, the auto industry desperately needs sops and stimulus to come out of the sluggish spell.

SUVs were the only bright spot in an otherwise gloomy auto market that has been witnessing severe slowdown in the current financial year. Additional tax and resultant increase in prices is likely to dent the sales of SUVs as well. In view of its far-reaching forward & backward linkages, the impotance of auto industry in terms of employment & revenue generation, as also its contibution to the GDP, cannot be overemphasised.

Therefore, we would suggest to the Hon’ble Finance Minister to roll back the excise duty increase in the case of SUVs.  Ideally, all the vehicles, including SUVs, should attract the same rate of excise duty. 

All said and done, the Budget has definitely come up with fairly good sprinkling of positive measures that have the potential to revive the economy, in general and the auto market, in particular.

The allocation of close to Rs. 15,000 crore to JNNURM is a big positive for the commercial vehicle market, which is currently under acute stress on account of the economic slowdown. With the budget now proposing to use these funds to purchase 10,000 buses, the segment has something to cheer about.

Setting up of a regulatory authority for roads, target of 3,000 km of project award in first half of FY14; Investment allowance of 15% for investments above Rs. 100 cr in plant and machinery as a tax incentive; Proposal to provide an additional deduction of interest of up to Rs. 1 lakh on housing loans of up to Rs 25 lakh for the first time buyers in addition to the current exemption of Rs. 1.5 lakh; Extension of tax concession on spare parts of environment friendly vehicles till March 2015; Tax-free bonds up to Rs. 50,000 crore during the FY’14; increase in plan expenditure during the FY 2013-14 by 30% over the FY 2012-13; and continuing focus on infrastructure, agriculture and road projects are other positive measures, which will assist the auto market to steer back on growth path.

On the flip side, we were expecting a timeframe for rollout of GST, which was conspicuously absent in the Finance Minister’s budget speech. All what the Finance Minister indicated was that there had been some consensus on the issue and that it would get passed in near future. Further, implementation of DTC is yet to see the light of the day and has been deferred again.

All in all, the Budget 2013, while laying emphasis on fiscal consolidation, continues to focus on growth in predominantly primary sectors like agriculture, infrastructure and education. Housing industry has also been given a boost.  This growth will, in turn, support the growth in other sectors including the automobile industry, especially the commercial vehicle sector.

The Budget, in nutshell, is not short on intentions. The Achilles heel of policy formulation in India has been that the intention does not get translated into action on the ground. The tardy progress of road infrastructure development in India is a case in point. I sanguinely hope that outlays and intent will get converted into outcomes.

The good news on economic front is that IIP grew for the first time in three months by 2.4% in January 2013. However, the concern is that the retail inflation currently sitting at 10.9% is showing no sign of climbing down. We welcome the 25 bps cut in Repo rate by RBI, which, I hope, will give impetus to investment and industrial activity. 

Regarding FADA’s activities, one of FADA’s major events, viz., Automotive Dealership Excellence Awards for the year 2012 (ADEA 2012) was concluded with the presentation of awards to winners in various categories at a gala ceremony on 9th March in Mumbai. My heartiest congratulations to the winners.

As I have mentioned in my previous columns, the objective underlying these awards is to recognise and reward my fellow dealers who excel in various areas of dealership management, community service and social work. The recognition and accolades for the standout dealers apart, another objective is to bring to the fore the best practices in the trade and the phenomenal social work being carried out by the members of automobile dealer fraternity in various parts of the country, for others to know and replicate.

ADEA, instituted jointly by FADA and Auto Monitor, has made tremendous strides since its inception in 2009. Each successive edition has seen bigger participation from those aspiring for the awards. The awards are also evoking increasing attention and interest of industry, allied business and society, as the attendance at awards ceremony goes to show.  I am sure, ADEA is going to become the ‘Oscar’ of auto retail in India in the years to come.

I have reiterated time and again that automobile dealers cannot afford to rest on laurels in this fiercely competitive market.  The dynamics of auto retail are changing and old management techniques & tools are losing their relevance alarmingly fast with each passing day. Automobile dealers have to be constantly on their toes and geared to stand up to the new challenges. Keeping this in view, FADA has set an on-going training & development programme rolling for its members. A series of such programmes are planned to be conducted in partnership with Prashaste Education & Management Consultancy Pvt Ltd in various parts of the country.

I am happy to inform that a Management Development Programme was successfully organised during 22-23 February at Hyderabad. The programme received tremendous response. We have received a good feedback from the members. The next programmes in the series will be organised at Pune, Patna and Kochi in April 2013. The information is published elsewhere in this issue.

Dovetailing with ADEA 2012 function, FADA also held its Council meeting on 10th March 2013 in Hotel Leela, Mumbai. One of the key decisions taken at the meeting was to renew and redouble efforts to form an auto retail organisation at the global level. FADA and, for that matter, automobile dealers in India can learn a great deal through exchange and sharing of information. Needless to mention, with the integration of Indian economy with the rest of the world, the formation of an international body of automobile dealers assumes an added importance.

A major issue of concern, which has been bugging the automobile dealer community in India, is the low sales margins. The issue came out loud and clear at the panel discussion preceding the awards presentation ceremony at which industry leaders were also present in large number. FADA shall continue its endeavour for fair dealer’s margin in India as prevailing in other mature auto markets.

Look forward to your inputs and suggestions.

With best wishes,

Yours sincerely,

Mohan Himatsingka




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