No big bang effect for auto sector

There is no big-bang impact that will affect the fortunes of the auto sector that one could glean from the finance minister’s pronouncements in Parliament as she presented the Budget for 2020-21.

Perhaps this was to be expected as the indirect tax impact on the fortunes of any industry is now dictated by the GST council and the setting of GST rates is not a Central budgetary exercise unlike in an earlier era where excise duty rates were set by the Central budget and sales tax rates were set by the State Budgets.

One of the key issues facing the auto sector is the lack of demand for its products partly weighed down by high GST rates ranging from 28 pct to 50 pct based on the size of the vehicle and engine capacity.

To kickstart demand the government needs to put more money in the hands of the consumer to buy automotive products. This has been achieved in part by the rationalising of income tax rates and slabs.

To compensate for the revenue loss from tax rationalization measures, the government has decided to deepen its efforts towards privatization – the part sale of the Life Insurance Corporation of India must be viewed as such. But this will have the beneficial impact of not allowing money market interest rates to move in an upward trend as the need by the government to borrow money from the markets will be lessened to that extent.

The allocation of Rs 18,600 crores of a suburban train project for Bangalore will impact the auto sector favorably by decongesting parts of the city that will allow for freer movement of vehicles and hopefully then help demand.

Moreover, development of 2,500 km access control highways, 9,000 km of economic corridors, 2,000 km of coastal and land port roads and 2,000 km of strategic highways will boost further investments into the auto sector.

Finally, what the government could have done for the auto sector was to have announced some provisions for a vehicle scrappage fund which would in turn help create demand for new vehicles, decongesting the roads  and help with local pollution by taking old vehicles off the roads.

(The writer is Vice Chairman & Whole-time Director at Toyota Kirloskar Motor.  All views are the author's own and do not necessarily reflect the newspaper's.).