On 16th March, Honorable finance minister Mr. Pranab Mukherjee presented the budget for 2012-13 – a year that heralds the beginning of the 12th 5-year plan. The overall review of the budget has not been very positive though some quarters have expressed happiness.
Let us understand how some of the budget points impact the automobile industry.
The major impact points are as follows:-
1. Service tax rate hiked by 2% (from 8% to 10%)
-> This increases the vehicle prices by 2% almost flatly. So for vehicles falling in the price bracket of 3 – 10 lakhs, the price increase can be approx 6 – 20 k.
-> My personal feeling is that this will not have any negative impact on the sales numbers; attractive schemes and value for money purchase will be differentiating factors
2. Service tax hike for luxury cars – vehicles that were attracting a duty of 22% will now be taxed 24% and those with 22% + 15,000 will be taxed flat at 27%
-> Certain vehicles having more than 1500 cc engine will fall under this bracket
-> The impact on masses will be minimal
3. Customs duty on CBU’s of large cars / MUV’s / SUV’s with price >= $40,000 increased from 60% to 75%
-> Will impact the imported vehicles from the stables of BMW, Audi, VW to name a few
-> This is a favourable point for our country:-
i. The customer willing to shell out 35-50 lakhs will not mind shelling out 2-3 lakhs more because of the hike; hence increase in revenue for the govt
ii. An indication to these auto majors to shore up their assembly units in this country. No hike on CKD’s; hence these companies should look to build assembly units in India. Favourable in terms of employment and local revenue generation
4. Customs duty waived off on parts required for research on hybrid vehicles
-> Will boost research and have a long term positive impact; but no short term impact
There goes the major impact points for the sector. Lacklustre to say the least. Nothing that will boost the sales of the vehicles. Automobile industry is considered to be a precursor to the economy movement and not a sibling of the power, infra & agri industries. Thus, the govt should have announced some favourable goodies that would have helped this sector push for growth.
With regards to companies, the Indian manufacturers neither stand to gain nor lose. The foreign carmakers do find themselves on a sticky wicket with the push to shore up their Indian assembly unit plans. Additionally, companies with big vehicles in their backyard will be hit by the selective hike in service tax rate for luxury cars.
Now, coming to minor impact points.
1. Customs duty on imported equipments for agriculture being waived off
-> This is a boost to the agriculture sector
-> Hence the farm equipment companies like Mahindra stand to gain. Tata Motors Commercial Unit will benefit very marginally from this too
2. Tax on interest payments on ECB reduced from 20% to 5% for power, infra and fertilizer industries
-> This is boost to the power and infra sector
-> Hence Tata Motors Commercial Unit, Ashok Leyland and Eicher motors stand to gain from this
3. NSDC(National Skill Development Centre) gets more project approvals and fundings
-> 3 sector are already functional and automobile is one of them
-> This will help create more auto-trained manpower and thus serve the numerous existing and upcoming automobile factories
4. RRB (Regional Rural Banks) being extended till 1k and 2k population group villages
-> Boost to credit facility penetration
-> Hence will have a mild positive impact on auto industry. Mahindra, Tata Motors can look to gain from this
These minor points do give a positive signal to the auto industry but when added with the major points, the impact is again miniscule.
If we analyze company wise, Mahindra looks to gain the maximum while Tata Motors and Ashok Leyland will have almost no impact. The others will face marginal heat from this budget.
