India’s car dealers are hoping that Nirmala Sitharaman’s Budget 2021 brings buyers back — but rising prices may still be a deterrent

India’s car dealers are hoping that Nirmala Sitharaman’s Budget 2021 brings buyers back — but rising prices may still be a deterrent
BCCL
  • For the first time in this fiscal year, registration of vehicles across India in December recorded a growth of 11% year-on-year but industry insiders fear the trend may not sustain.
  • According to the Federation of Automobile Dealers Associations of India (FADA), Car sales picked up in December but only because buyers wanted to avoid the price hikes scheduled in the following month
  • The dealers’ lobby hopes that the upcoming budget will incentivise buyers to return to the showroom.
  • Check out the latest stories on Budget Insider.
The 11% growth in vehicle registrations in December 2020 was welcome, but the Federation of Automobile Dealers Associations of India (FADA) isn’t sure if this trend will last. Coming out of two very difficult years, the lobby of car dealers in India is hoping for incentives and support from Finance Minister Nirmala Sitharaman in the upcoming Budget 2021

There is a long list of asks from the auto industry, including the dealers ⁠— from income tax relief to leave more disposable income in the hands of consumers to cuts in goods and services tax on automobiles and an increase in rural spending, infrastructure activity that will increase the need for trucks. The fear is Sitharaman has limited resources to spend.

According to the latest data from the Federation of Automobile Dealers Associations of India (FADA), vehicle registrations in December rose by 11%, with passenger vehicles clocking in a 24% growth, all thanks to a good crop season, new launches, year-end offers, and pre-buying ahead of the price hikes.
India’s car dealers are hoping that Nirmala Sitharaman’s Budget 2021 brings buyers back — but rising prices may still be a deterrent

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Production incentives are in place but the demand for cars is still weak

As a part of its Atmanirbhar Bharat (self-reliant India) scheme, the government has announced the production-linked incentive (PLI) scheme for ten sectors, including automobiles, to boost the inhouse manufacturing. The scheme has allocated nearly ₹57,000 crore for the auto industry and another ₹18,100 crore to boost the production of advanced chemistry cell batteries (Lithium-ion batteries). However, the eligibility details are still to be finalised.

While this may incentivise and reduce the cost of production over the long term, car makers still need buyers to return to the showroom.

The industry and the dealers have also sought a cut in Goods and Services Tax, a demand that has found support with the Parliamentary Standing Committee.
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SegmentCurrent Taxes
Bikes under 350cc18% GST
Bikes above 350cc3% cess + 18% GST
Small Cars & Mid-SizeCars18% GST + cess
Luxury Cars & SUV’s 28% GST + cess

The panel chaired by Telangana Rashtra Samithi (TRS) lawmaker Keshav Rao, also said that there should be a levy on used cars. That would be a setback for many startups like Cars24 and CarDekho that have seen a sharp spike in used car sales in recent months.

Car sales have been slow, truck sales even slower

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The automobile industry is hoping that Budget 2021 will look to entice people outside the big cities to buy cars, and kickstart enough industrial activity to increase the demand for trucks and other commercial vehicles (CV). “The government’s approval for ₹12,000 crore infrastructure projects will see its positive effects in the CV space, though full recovery is only expected in all the segments of the industry from April’21 onwards,” FADA’s latest statement said.

However, as Subrata Ray, the senior group vice president at ICRA, told Business Insider there is “limited space available” to increase spending in rural areas.

Scrappage policy announcement

It was 2019 when India had announced that it will force cars older than 20 years and trucks older than 15 years to be retired. This is called the scrappage policy. However, that policy is still to see the light of the day.
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The industry hopes that Budget 2021 will unveil the rollout plan for scrappage and that, in turn, will push the sale of new vehicles. “This is the time to implement it. It will lead to the scrapping of 6 lakh commercial vehicles over the next two-three years and generate demand,” said CRISIL’s, Chief Economist, DK Joshi in a conversation with Business Today.

This would be a good way to avoid any financial burden on the government as well as reduce emissions.

India’s car dealers are hoping that Nirmala Sitharaman’s Budget 2021 brings buyers back — but rising prices may still be a deterrent
BI India

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Protection for domestic car makers

In order to save the home-grown electric vehicle companies from exploitation by the foreign EV makers, FM Sitharaman in her last budget hiked customs duties on electric vehicles by 5% to 15%.

According to Ashish Modani, vice president at ICRA, “At present, overall localization level is very low in EVs as compared to ICE counterparts. Hence, push for local manufacturing by GoI will continue in the medium term either by providing direct financial support under the proposed PLI (product linked incentives) scheme or by increasing duties on the imported EV components.”

Electric vehicles: Basic custom duty hiked in Budget 2020

ComponentsCustom duty nowCustom duty earlier
Completely built units of EVS40%25%
Electric two-wheelers25%15%
Electric buses25%15%
Electric trucks25%15%
Semi knocked-down electric PV30%15%
Source: Union Budget 2020
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Car sales picked up in December but only because buyers wanted to avoid the price hikes scheduled in the following month

According to the FADA, the festive boost and the pre-buying decision ahead of the price hike in January has led to 11% year-on-year growth in December.

The data showed that the dealer Inventory continues to fall with passenger vehicle inventory ranging from 15-20 days and two-wheelers inventory at 30-35 days.

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Their pitch is that they could use all the help they can from budget 2021.

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