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Updated: February 21, 2010 18:37 IST

Budget expectations of the auto industry

D. Murali
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Mohan Ramakrishna, Partner, Walker Chandiok & Co.
Special Arrangement Mohan Ramakrishna, Partner, Walker Chandiok & Co.

Indian auto industry is the third highest growth market in the world in 2009 after China and Germany, notes Mohan Ramakrishna, Partner, Walker Chandiok & Co, Chennai, during a recent pre-Budget email interaction with Business Line.

As the Co-Lead of his firm’s auto focus team, Mohan mentions that the Indian auto industry is also the:

• Largest three-wheeler market in the world.

• Second largest two-wheeler market in the world.

• Fourth largest passenger vehicle market in Asia.

• Fourth largest tractor market in the world.

• Fifth largest commercial vehicle market in the world.

Excerpts from the interview

Essential Budget expectations of the auto industry

• Minimal or no reversal of stimulus given to tide over the recessionary conditions last year. Already an increase in the Cenvat rate for excise duty by 2 percentage points has been the first step towards withdrawing the post-crisis fiscal stimulus in the Union Budget.

• Continue export sops and extend the 2 per cent interest subsidy given to exporters on rupee export credit from March 31 to December 2010 in order to help auto exports sustain growth and stabilise it at 15 to 20 per cent.

• Reduction of Customs Duty rates in line with the WTO Agreement.

• Reduction/ rationalisation in VAT ensuring uniform VAT law and procedures.

• All erstwhile sales tax incentives should continue under VAT regime.

• Set-off of VAT paid should be allowed for all inputs including raw material, components, consumables, fuel and capital goods and services.

• DEPB Scheme should be extended for at least two more years

• Embedded tax of 12 per cent makes vehicles manufactured in India less competitive to that extent in the international markets. Hence any export incentive scheme offered to the exporters should factor this in the total value of credit. This should be in addition to the Drawback/ DEPB for actual import duty suffered on raw material and component.

What are the desirable expectations?

• Increase in Excise Duty on diesel vehicles, as recommended by Palkhi committee should be deferred.

• Increase in import duties on components, especially in secondary market, essentially to insulate from the impact of low-cost components from China flooding the market.

• Set up tax exemption zones with concessional/ nil duties, especially for component manufacture to again increase the competitiveness of local component manufacturing industry.

• Reduction in levies for hybrid vehicles.

• Sops to encourage research and development in new technologies like those for hybrid vehicles, low-emission vehicles etc.

• Tax benefits for interest paid on loans for purchase of motor vehicles

On policies/ developments in related sectors impacting auto sector

We need regulations/ laws that would ensure the following:

• Increasing road development.

• New tax benefits/ extension of existing ones such as under Section 80IA to encourage more of PPP projects for infrastructure development.

• Increasing disposable income with the service sector.

• Alignment of new/ amended laws/ regulations – Company Law, Direct Taxes Code, IFRS and GST.

• Cheaper (declining interest rates) and easier finance schemes.

• Replacement of ageing four-wheelers.

• Increasing dispensable income of rural agri sector.

• A robust used-vehicle market.

• Growing concept of second vehicle in urban areas.

• Fuel prices regulated to be in a reasonable range.

• Enablers for increased FDI (foreign direct investment).

• Stable import tariffs.

• Encouragement to environmental aspects.

• Easier availability of working capital loans at soft rates, especially to SMEs.

***

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