Post-union budget: things to know & impact on automobile industry

Effects of Union Budget 2022 on Indian Automobile Sector - Explained

With the Union Budget for 2021-2022 announced to the public, there have been significant changes to the nation’s financial landscape. With a heavy emphasis on strengthening the sectors that strengthen India’s economy, plenty of reforms have been proposed in diverse sectors of the nation’s financial environment, while making the entire approach to the budget inclusive to the public.

This year, the primary focus of the Union Budget is on health and human well being, resource allocation, research & development and maximized governance, there are also major developments in the realm of automobiles, automotive fuel, taxation (direct and indirect) and all round development for the underprivileged members of society.

While the in-depth details of the Capital and Revenue Budget may be found elsewhere across the vast playing field of the internet, our eyes and ideas at Divyol, are fixed on the various new policies put into place with regard to the automotive sector.

Though this year doesn’t hold many offerings for the automotive industry, there are a few factors that have affected one of India’s largest sources of increasing the nation’s GDP. The automobile sector has seen a rapid decline in revenue since the end of 2019, which was later aggravated due to the covid-19 pandemic and the lack of demand for commercial vehicles.

However, in her address to the nation, Finance Minister Nirmala Sitharaman announced a few new advantageous steps that the automobile sector could take. Here are a few things you need to know:

  • Taxation on fuel – petrol and diesel:
    The union budget announced the taxation of fuel, i.e petrol and diesel at around 70%. An excise duty has also been imposed on petrol at INR 1.4 and INR 1.8 per litre.This has been put into practice to impose better functionality and improve the agricultural infrastructure and practices in India. The above values also apply on the Basic Excise Duty and SAED prices. Fuel prices may not see an increase for a while beyond the new values imposed. This new system will therefore not affect the customers.

Taxation on vehicle parts:
Automobiles need frequent maintenance and in many cases, the parts you may need to have replaced could be imported and expensive. The projected move regarding auto parts is to manufacture the needed equipment at home, in India. This will be constantly reviewed for loop holes and fallacies that may lead to discrepancies in the system.
Some auto parts may see an increased custom duty of upto 15%. This is a move to level out the rates and even the field with a general structure on the rates of auto parts. Be prepared for an increase in custom duty rates for items like rods, frams, external and internal panels of vehicles, wheels, spokes, brakes, belts and gears. This is imposed as a means to encourage home grown production of the necessary components and reduce foreign auto part acquisition costs.

Vehicle scrappage policy:
By far the most important policy that was introduced for the automotive sector this year was the ‘Voluntary Vehicle Scrapping Policy’. This is a long awaited decision, that has been in the oven for quite some time and has seemingly come out fully baked.After what seems like a lifetime of waiting, the union budget involves the declaration of a new policy, that allows long time vehicle owners to scrap their vehicles that are 20 years or older. This can also be used to tier advantage while buying a new vehicle for their personal usage. A similar rule for 15 year old vehicles has been imposed on commercial vehicles. However, there is a caveat. The vehicles that require scrapping may have to undergo a mandatory fitness test at a government authorized center to avail the benefits that are offered during the purchase of new vehicles.The aim here is to reduce vehicular emissions in the coming years. The projected value of emission reduction is currently at 25%, but successful execution of these plans may result in a more viable system.

In addition the primary points of note, some successes and failures to note may take a while to be worked on and reflect within the confines of the automotive sector. Tier 1 and Tier 2 cities may see larger fleets of buses for public transport and Indian infrastructure projects may see better investments and allocation of money.

There is also a flipside to this, with no exemption on personal income tax during automobile purchases, and no semblance of rationalization on GST. While the ‘historic budget’ has now been declared, be prepared for long term changes in the automotive industry right here at home, in India.

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