Union Budget 2016 - A Mixed Bag for Auto Sector

Dear friends,

The Union Budget 2016, presented by the Hon’ble Finance Minister on 29th February, is a mixed bag for the automotive industry. The focus on infrastructure development, particularly bettering the road infrastructure across the country will definitely benefit the auto sector. However, higher taxes proposed in the Budget on cars & SUVs will adversely impact the auto sector that is yet to recover from a prolonged slowdown phase.

The renewed thrust on agriculture & rural sectors as well as infrastructure development and higher allocations under these heads in the Union Budget will create more opportunities of employment, especially for the rural people, thereby helping revive rural demand, which has been under severe stress for the past 2 years due to uncertainty facing rural economy because of deficient, erratic rains.

A total investment of Rs. 97,000 crore has been proposed for the road sector, including PMGSY allocation, during 2016-17. The expansion and betterment of roads will not only generate additional jobs, but will also boost vehicle demand, addressing to some extent, the problems of environment pollution and road safety at the same time.

We, in FADA, welcome the amendments that are proposed to be made in the Motor Vehicles Act to open up the road transport sector in the passenger segment, which will impart pace to the development of transport sector while giving impetus to the commercial vehicle segment, in particular.

We compliment the Government for its proposal in the Union Budget 2016 to set up 1,500 multi-skill training institutes under the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), for which Rs. 1,700 crore has been set aside. 

Raising the cap on exemption for HRA from Rs. 24,000 to Rs. 60,000 in the case of those living in rented houses and the increase in tax rebate from Rs. 2,000 to Rs. 5,000 for those whose income is less than Rs. 5 lakh are other welcome features of the Union Budget. The tax relief will leave more disposable income in the hands of middle-class people, particularly salaried people, which is likely to result in the increased demand for consumer goods and consumer durables, especially two-wheelers.

It is good to note that the fiscal deficit targets for the FY 2015-16 and 2016-17 at 3.9% and 3.5%, respectively, have been retained despite substantial 15% increase in the planned expenditure. This should be comforting for the RBI to further reduce interest rates to give fillip to the investments and growth. 

On the flipside, infrastructure cess of 1% on small petrol, LPG, CNG cars below 4-metre in length and less than 1200cc engine, 2.5% on diesel cars with engine capacity of less than 1500cc and 4% on other passenger cars and SUVs, resulting in substantial increase in the Car & SUV prices, will have a depressing effect on auto market. 

The Union Budget does not offer any significant relief to the middle-class people. The raising of income tax slabs would have offered a little more cash in the hands of people, translating into pick-up in demand for motor vehicles. 

We were also expecting announcement of a scrappage policy, with built-in incentives for scrapping old vehicles, which would have helped the renewal of vehicle parc and addressed, to some degree, the issue of increasing pollution levels. 

We hope, the Government and the Hon’ble Finance Minister will review the increase in duty on passenger cars & SUVs and incorporate other suggestions, before the Finance Bill is finally passed.

While on the subject, I am pained to know that a number of automobile dealerships were damaged/destroyed during the recent Jat reservation stir in Haryana. I express my solidarity with my fellow dealers whose dealerships were damaged. Some time back, a high-intensity cyclone destroyed a number of dealerships in Visakhapatnam. I would, therefore, urge my fellow dealers to go for a comprehensive insurance cover to indemnify themselves against all such possible occurrences.  

With best wishes,

K V S Prakash Rao




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