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How Will the 2021 Budget Impact the Auto Sector in India?

How Will the 2021 Budget Impact the Auto Sector in India?

The 1st of February, 2021 was a pretty heated and hectic day for the automotive industry as the Finance Minister, Nirmala Sitharaman, announced the Union Budget 2021, its policies and initiatives. The industry had suffered a severe economic blow due to the pandemic and relied on the new budget for faster recovery.

Budget 2021: Demands placed by the auto industry

In hopes of recovering after months of low demand, the auto industry’s two significant requirements from the Budget 2021 were rationalisation of the tax structure and scrappage policy. These policies are considered to be the need of the hour because “tax on the automobile sector is very high. Currently, most cars, commercial vehicles, and two-wheelers fall in the bracket of 28%,” said Satyakam Arya, MD and CEO of Daimler India.

What the 2021 Budget offers the automobile sector?

So, has the Finance Minister introduced such measures in the Budget 2021 for auto sector that will help it recover faster from the economic crisis of 2020? Let’s find out.

#1 Perhaps the most important announcement for the industry was the voluntary vehicle scrappage policy. Union Minister of Road, Transport, and Highways, Nitin Gadkari, has confirmed that the specifics regarding this policy would be announced soon.

#2 The next announcement in this year’s Union Budgetdeals with boosting agricultural growth. However, the auto industry’s takeaway is in the form of a government-introduced cess on petrol, diesel, and other specific items. Now, does this measure mean fuel prices will go up? Hardly, since the imposition of cess is accompanied by a reduction in Basic Excise Duty (BED) and Special Additional Excise Duty (SAED).

#3 Finally, another important announcement in the Budget 2021 is that of taxes – the government has introduced a hike in taxes on specific auto components such as engines. Though this move has been taken in order to make India more self-reliant, it is unlikely to sit well with foreign OEMs such as Volvo and Mercedes-Benz who need to import some of their models.

Additional Read: Key Things to Know about the Union Budget 2021

Reactions to the new Budget policies

Reactions to the new Budget 2021 for auto sector are mixed, yet, by far, the announcements have been received well. The brand director of Volkswagen, Ashish Gupta, said, “With respect to the auto sector, increase in custom duty on certain auto parts would impact the input costs although we’re yet to assess the financial impact. On the voluntary scrappage policy, strict governance on the fitness test would determine the benefit on the environment and pollution reduction.”

The MD and CEO of Mercedes-Benz, India, Martin Schwenk, also showed his concerns regarding an increase in taxes on engine components, by further adding, “There could have been a further push towards e-mobility by lowering import duties on EV.”

Additional Read: Emerging Trends in the Second-Hand Car Market

To sum up

The new budget policies make it clear that now is the time to invest in second-hand luxury cars by applying for a used car loan. Plenty of pre-owned vehicles at top-notch condition yet lower prices are available in the market today.

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You can use our online used car loan EMI calculator to determine your affordability in advance. Adjust the loan amount and tenure to arrive at a suitable EMI.

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