The Union Budget announced by Finance Minister Nirmala Sitharaman for the Financial Year 2021-22 comes with several positive measures for the auto industry in India. Right from the much-awaited vehicle scrappage policy to the increase in auto component duties, there is a lot that has been announced. At the same time, there have been no new announcements regarding the reduction of direct taxes, reduction in compensation cess, nor any move to further push towards e-mobility by lowering import duties on electric vehicles. And that has disappointed some of the automakers, especially those in the luxury car space. Having said that here some of the highlights from the 2021 Union Budget for the auto industry.
Vehicle Scrappage Policy
The auto industry has been asking for a proper vehicle scrappage policy for a few years now. Finally addressing the demands of the stakeholders, Nirmala Sitharaman said that the government will introduce voluntary vehicle scrapping policy to phase out old and unfit vehicles. She said that this move will help encourage fuel-efficient and environment-friendly vehicles, thereby reducing vehicular pollution and oil import bills. The Ministry will announce more details in the coming months.
As per the proposed Scrappage Policy, 51 lakh vehicles in India are currently over 20 years old and 34 lakh vehicles in the country are over 15 years old, and these vehicles have the potential to be scrapped, thereby reducing vehicular pollution by up to 25 per cent. The scrapped vehicles have the potential for providing raw materials after being recycled.
Expansion of Road Infrastructure
Another major announcement from the 2021 Union Budget was about additional investment towards the development and expansion of road infrastructure. The government has an outlay of ₹ 1.18 lakh crore for the Ministry of Road Transport and Highways, which will be utilised to further build highways across the country with a target to expand India's highway network by 8500 km by March 2022 and complete an additional 11,000 km of the national corridor.
In her presentation, Sitharaman said that the highway infrastructure will include a 3500 km corridor in Tamil Nadu. An 1100 km stretch will be built in Kerala with an investment of ₹ 65,000 crore, while 675 km will be constructed in West Bengal for ₹ 95,000 crore. Assam will get 1300 km of a highway stretch in the next three years under the plan.
Rise In Auto Component Duties
Under the new Union Budget, the government will now also increase the custom duty on certain automotive parts. Finance Minister Nirmala Sitharaman has proposed to hike customs duty on specific auto components from 7.5-10 per cent to 15 per cent. These also include parts like ignition wiring sets, safety glass, electrical lighting, windscreen wipers, instrument panel clocks, and clocks, defrosters, and demisters.
While this could be seen as a move to give local manufacturing a boost, however, the move will impact the luxury carmakers who import a lot of these parts for their CKD models. Commenting on the decision, Martin Schwenk, Managing Director and CEO, Mercedes-Benz India said, "The increase in the rise in auto component duties is unexpected in such revival period, and it will increase the production cost, leading to higher cost for consumers."