With a few days to go for the Union Finance Minister to present the Union Budget 2022-23, every section of the industry anticipates that the proposed Finance Bill will support growth, especially with the pandemic continuing for a long.
GST
The auto components industry, which is grappling with several other issues, including the semiconductor shortages, is expecting the government to introduce a uniform Goods and Services Tax (GST) levy of 18% on all automotive parts from the current 28%. This step will give much-needed support to the automotive industry amid the uncertainties, said Prashanth Doreswamy, President & CEO, Continental India.
Voicing a similar concern, Gajanan Gandhe, Country Head, Dana India, said the Union Budget needs to come up with a strategic, long term plan and outlay that aids year-long recovery and helps improve consumer demand that has collapsed. Reducing GST and applying a uniform GST of 18% will lead to better compliance as the tax base improves. Furthermore, to enhance local competitiveness amongst suppliers, tax incentives should be increased for investments made for research and development in new technology areas. Also, bringing petrol and diesel under the purview of GST will help streamline the costs impacted by fuel.
Anurag Garg, Managing Director & Country Head, Vitesco Technologies India, said that to take the overall automotive industry and retail trade back on the growth path, the Ministry should regulate and reduce GST rates on two-wheelers to 18%. It is important to note that the two-wheeler is a necessity to travel distances by lower class and rural segments for their daily working needs. Moreover, the market is very volatile, and the automobile prices are increasing every three to four months due to incessant price hikes in metals and various other issues; a reduction in GST rate will counter the price hike and aid in shooting up the demands in the market.
Farrokh Cooper, Chairman & Managing Director, Cooper Corporation, said that the government should prioritise managing inflation and lowering the cost of raw materials and fuel costs. Furthermore, to boost exports, existing incentives must be increased. There is also a need to accelerate the GST refund procedure to provide liquidity to the industries. The industry is also eagerly awaiting news on the scrappage policy, Cooper added.
Electrification
The government has been taking significant steps to promote electric and safe mobility. The auto components industry expects some relaxation for the research and development of new technologies. This will further motivate OEMs and automotive suppliers like us to invest in innovations and technologies for the country.
Anil Kumar, President and Managing Director, SEG Automotive India, said the government expects to provide further impetus by bringing EV favourable schemes to reduce imports and promote and strengthen local manufacturing.
Gajanan Gandhe said that the path ahead for EVs looks promising. To encourage investment in EVs, reduction in GST for e-two wheelers, EV batteries is crucial. An increase in tax sops for EVs and charging units will push the sales.
To indirectly uplift the sector further, income tax for salaried employees has to be brought down. Coupled with enhancing the tax-free Provident Fund amount and increased standard deduction, the ever-toiling salary class will provide much-needed relief.
Investments in semiconductor chip manufacturing, high-end electronics controls, rare earth magnets, and other critical components of the electric vehicle will make India self-sufficient in the country’s long-term demand and make it another significant source of low-cost manufacturing for exports other than China, Gandhe added.
RoDTEP
Ashwath Ram, Managing Director, Cummins India, said liquidity is essential for manufacturers to get capital at cheaper rates to invest in equipment for growth. Exporters need to be encouraged by SEZs coming into Remission of Duties and Taxes on Exported Products (RoDTEP) and the rates of payouts from the schemes to match the actual double taxations costs.
Gajanan Gandhe opined that RoDTEP and export subsidies will help manufacturers tackle counterfeit, forged products that rose in the last two years. RoDTEP is a flagship export promotion scheme that was brought in January 2021 to encourage export activities. However, the overall reduction in benefits provided by RoDTEP from the earlier plans are hurting the exporters, he added.
PLI Scheme
Anurag Garg said the industry is awaiting more light on production-linked incentive (PLI) schemes extended for electric vehicles and advanced technology components. The vehicle scrappage policy and PLI scheme announcements for semiconductors are significant positive steps. These have the potential to boost demand and resolve supply chain disruptions for the industry. The PLI Scheme will get a better push to boost manufacturing and attract investments in the automotive sector, benefitting us in the long run. The increase in customs duties in some sectors is designed to push self-reliance and localisation. “As we look towards a future with electrified automotive, localisation will definitely help in cost optimisation in the future. Though it might create initial challenges through price hikes and demand generation, it will be better for our economy in long run,” Garg added.
Ashwath Ram said that manufacturing electrolysers for H2, H2 in ICE and Flex fuels engines production equipment should come under the PLI scheme. Further, exports focused projects in manufacturing need some incentives for better scalability and business sustainability.
Doreswamy said, “The PLI scheme is a welcome step, and we hope the scheme will be further expanded this year. Further, we seek reintroduction of investment allowance at 15% for manufacturing companies that invest more than INR 25 crore in plant and machinery. This will complement the PLI scheme and attract more investment in the sector.”
Anil Kumar noted that the recently announced PLI scheme to be more friendly to mid-sized component manufacturers to be in a position to avail the benefits of the scheme.
Anurag Garg welcomed the focus on renewable energy. The Hydrogen Energy Mission and focus on solar energy will help meet the energy requirements in the future adequately.
Ashwath Ram opines that India must continue its multi-year spend on infrastructure to sustain growth. “We cannot slow down spend even if it is slightly inflationary in the short term. More support is needed for manufacturing as we are still reeling under the effects of COVID-19 to sustain long term growth and capital buildup,” he said.
Farrokh Cooper expects the government to fix industry income rates for at least five years so that industrialists can make long-term financial planning and take appropriate decisions about investment in their industries. As the government is now encouraging businesses to establish large industries, they should be treated equally with medium and small industries in terms of receiving timely payments from the government and private sectors so that they can pay small and medium enterprises.
Forging Industry
Representing the forging segment, Yash Jinendra Munot, Vice President, Association of Indian Forging Industry, said, as the industry faces a large cash flow block with some value-added products at 28%, this budget should consider rationalisation of the GST rates, which should be uniform at 18%. Additionally, import duties on steel should be reduced to meet the current shortfall and competitive Indian steel prices. Furthermore, as part of the 'Make in India' initiative, Indian companies should be eligible for a benefit on the duty structure.
'We also anticipate that the scrappage policy, which is currently being held up by the finance ministry, will be passed to boost demand in all segments of the auto sector while achieving pollution goals. Thus, incentives for scrapping old and purchase of new vehicles should be implemented quickly,' Munot added.