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Updated: February 18, 2010 19:27 IST

Five imperatives for the automotive sector

D. Murali
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Abdul Majeed, India Leader for Automotive Practice, PricewaterhouseCoopers.
Special Arrangement Abdul Majeed, India Leader for Automotive Practice, PricewaterhouseCoopers.

Five imperatives for the automotive sector, according to Abdul Majeed, India Leader for Automotive Practice, PricewaterhouseCoopers, are the following: Continue with the stimulus package to sustain growth momentum in the industry; promote adoption of ‘green technology’ by introducing duty cuts and lower tariffs on components used in EFVs (environment-friendly vehicles); consider stimulus packages focussed on new technologies; introduce scrappage incentive scheme to replace the old fleet of vehicles; and continue the thrust on infrastructure, particularly the roads.

Here are excerpts from a brief pre-Budget email interaction between Majeed and Business Line.

On continuing stimulus package.

While there is little doubt that the stimulus packages (cut in excise, 4 per cent, and service tax rates, 2 per cent) announced by the Indian Government have propelled the auto industry forward, there is speculation that these may be withdrawn in 2010.

To help the auto industry maintain its growth momentum in 2010, the Indian Government needs to consider extending or even make permanent some of the stimulus measures, such as the reductions in excise duty.

On promoting ‘green technology’.

Government needs to consider lowering tariffs on auto components used in EFVs (such as hybrid and electric) as well as explore options to reduce overall duties in hybrid vehicles.

Though there is zero/ nil excise duty on EFVs, components used in these vehicles still attract an excise duty of 8 per cent. Custom duties on imported auto parts (e.g. lithium ion batteries) are currently in the range of 7.5 to 10 per cent. Reduction in these duties would pave the way for OEMs in reducing the final price of such vehicles.

On spurring new technologies.

Recently various governments in Europe have announced stimulus packages that enabled funding to the domestic industry including OEMs, with a focus on alternative fuel products, new technologies and innovation.

Given the significance of the domestic auto industry in the Indian economy, its employment potential, and the huge backlog of technology upgradation, a stimulus package focussing on new technologies would provide necessary impetus to both OEMs and suppliers to modernise.

On scrappage incentive.

Government should explore the possibility of a scrappage incentive scheme for replacing older vehicles on Indian roads. At the moment we still have vehicles older than 10-15 years plying on Indian roads.

Such an incentive scheme besides stimulating demand for new fuel-efficient vehicles would also help in curbing air pollution.

On continued thrust to infrastructure.

The National Highways Authority of India (NHAI) recently set up Special Land Acquisition Units (SLAUs) across India in cooperation with various state governments. Land acquisition delays were cited as a major roadblock for completion of projects such as the Golden Quadrilateral (GQ) and the NS-EW Corridors.

These nodal units set up for a period of one year can now help in speedy disposal of land acquisition proposals by the respective state governments. Thrust on completion of road projects should continue as per Plan.

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