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Reactions of automotive sector to Union Budget 2010-11 Print E-mail
Written by Vijay   
Wednesday, 03 March 2010
Mumbai: Though the budget did not meet all the expectations, as far as the automotive industry is concerned, it is expected to have a positive impact on industry and the economy as a whole.

Dr. Pawan Goenka, President, SIAM and President – Automotive, Mahindra & Mahindra, stated that the Hon’ble Finance Minister and his team seem to have struck the right balance in pushing reforms, maintaining a high focus on social and physical infrastructure whilst returning to fiscal responsibility in a measured manner.

He cited several positive proposals for the Automobile Industry - the correction in Excise duty on Electric Vehicles which will enable the manufacturers take CENVAT credit and exemption of Customs duty on Electric Vehicles parts.

Weighted deduction on expenditure incurred on in-house R&D has been enhanced from 150 per cent to 200 per cent. Weighted deduction on payments made to National Laboratories, Research Associations, Colleges, Universities and other institutions for Scientific Research has been enhanced from 125 per cent to 175 per cent.

Payment made to an approved association engaged in research in Social Sciences or Statistical Research will be allowed as a weighted deduction of 125 per cent. The income of such approved research association shall be exempted from tax.

"Some of the other announcements made by the Finance Minister for manufacturing and R&D activities should enhance the competitiveness of the Indian industry. The intention to further promote the development of infrastructure, particularly in rural areas, is a positive step. The government’s commitment to continue with its reform process and to maintain the growth momentum to attain the projected GDP growth are likewise positive steps," said Karl Slym, President and Managing Director of General Motors India.

Dr Goenka also welcomed the increase in weighted deduction for in-house R&D to 200% from 150% and outsourced R&D from 125% to 175%. This would spur industry focus on innovation, R&D and product development that would increase the competiveness of the industry longer term.

He said that 2% hike in Excise duty was expected and should not have adverse impact on the market. The result of the Budget proposals is that the basic Excise Duty rate and Service Tax rates have converged to 10%, indicating a move to enable GST implementation from Apr 2011.

"As far as the automotive industry is concerned, the budget did not meet all the expectations as the sector is yet to recover fully. We were not expecting any hike in excise duty and imposition of some duty on petroleum products at this juncture. The automotive industry is one of the growth drivers of the economy and as such, continuation of the stimulus package for some more time would have helped the industry to recover fully from the recession. Having said this, some concessions given to environment-friendly mobility solutions are welcome decisions. Regarding the excise duty hike, we will evaluate the impact and revise the price of our vehicles in line with the increase," said Karl Slym.

The industry was hoping for a reduction in the large gap in excise duties between smaller personal vehicles and CVs and the high excise levy on larger personal vehicles, but that did not happen.

Mr. S Sandilya, Vice-President, SIAM and Chairman, Eicher Group said that in recent times, rural market has been playing an important role for the automotive sector and increased allocation for rural development including NREGA will have positive impact on automobile industry. Also, if banking license is granted to private players and NBFCs by Reserve Bank of India, it will result in increased reach and resulting penetration.

However, Mr Sandilya said that while other segments of the automobile industry are improving, the Commercial Vehicles segment is still to catch up with last year’s volumes and the industry was expecting reinstatement of accelerated depreciation and extension of JNNURM bus purchase scheme. We do hope some steps will be taken in this direction when the issue is debated in the Parliament.

SIAM also welcomed the increased allocation to renewable energy and setting up of National Clean Energy Fund. Mr Dilip Chenoy, Director General, SIAM also mentioned about the approval of the projects under the National Skills Development Council which will have significant benefits.

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