Budget 2010-2011 and Automobile Sector

This took the Indian automobile production from 5. The Indian automobile market is currently dominated by two-wheeler segment but in future. resulting in heightened automobile production. strong technological capability and availability of trained manpower at competitive prices.000 population in 2008).8 Million Units in 2007-08.3 Million Units in 2001-02 to 10. All segments of the sector posted strong double-digit . Today. asking for more investments in the Indian automobile sector by the MNCs. it possesses substantial potential for growth.000 people. the Indian government lifted the requirement of forging joint ventures for foreign companies. The automobile industry in India happens to be the ninth largest in the world. The other reasons attracting global auto manufacturers to India are the country s large middle class population.Automobile Industry in India Overview Indian automobile industry has metamorphosed into one of the growth drivers of Indian economy since the first car ran on the streets of Bombay in 1898. exported auto component worth around US$ 2. the Indian automotive industry provided direct employment to more than 300. Last year has been a great ride for the auto sector. Following Japan. Due to this large contribution of the industry in the national economy. growing earning power. Seeing the good initial response from consumers. the demand for passenger cars and commercial vehicles will increase with industrial development. automobile sector in India is one of the key sectors of the economy in terms of the employment. The recent launch of Tata Nano has brought about a new revolution in the country s small car segment. as India has low vehicle presence (with passenger car stock of only around 11 per 1. attracting foreign auto giants to set up their production facilities in the country to take advantage of various benefits it offers. South Korea and Thailand. India emerged as the fourth largest exporter of automobiles. In 2006-07. many other players in the industry are chalking out their plans to launch cars in this segment in the next few years. Directly and indirectly it employs more than 10 million people and if we add the number of people employed in the auto-component and auto ancillary industry then the number goes even higher. Several Indian automobile manufacturers have spread their operations globally as well. in 2009. Also.87 Billion. De-licensing in 1991 has put the Indian automobile industry on a new growth trajectory. which attracted global to the Indian market to establish their plants. and contributed 5% to the GDP.

666 8.4% while two-wheeler sales grew by 43.330 989.719 356.697 7.660 2008-09 1.930 11.876 Vehicles Commercial 203.743.545. Few of the facts and figures of Indian automobile sector are given below: Segment of Automobile Industry Passenger Vehicles Commercial Vehicles Three Wheeler Vehicles Two Wheeler Vehicles 15. Total sales of all auto-mobile companies are up 44.49 % The passenger vehicle market.223 519.697 275. which constitutes around 16% in volume makes up for 80% of automobile sales.030 7. Automobile Production Trends Category 2002-03 2003-04 2004-05 Passenger 723.300 391.026.982 556.626 9. has immense growth potential.445 Vehicles Two Wheeler 5.560 1.853.583 549. Aggregate financials of 91 automobile companies were exceptional with a spectacular 356% spike in net profit to Rs 3135 crore in the December 2009 quarter on robust operating performance and low base effect in December 2008 quarter. Two.803 434.087.6 % 76.997 10.175.503 11. 2005-06 1.126 501.681 8.697 8. against the same month last year.608.697 417. Anticipating the future market potential.479 .numbers with total sales going up by 45% in January.838.829 Vehicles Grand Total 6.Wheeler is still the most mature market with maximum sales in middle strata of society.96 % 3.243. the production of passenger vehicle is forecasted to grow at a CAGR of around 11% from 2009-10 to 2012-13.741 6.777.076.223 374.564 8.95 % 3.418.43%.703 Vehicles Three Wheeler 276.622.279.006 500.209.221 5.309.423 2006-07 1.126 2007-08 1.853.529.466.467.040 353.

430 Vehicles Three Wheeler 231.880 384.812.781 2008-09 1.897.682 260.198 902.123.551.435 7.391 7.078 307.537 7.061.076 351.572 Vehicles Commercial 190.364.122 349.143.126 5.765 Vehicles Grand Total 5.428 10.096 1.549.249.535 6.910 2007-08 1.379.209.862 Vehicles Two Wheeler 4.391 8.719 7.810.906.494 364.723.437.052.882 490.920 2006-07 1.529 284.Automobile Domestic Sales Trends Category 2002-03 2003-04 2004-05 Passenger 707.941.114 318.988 Global Standing  Fifth Largest commercial vehicle market in the world  Fourth Largest passenger vehicle market in Asia  Second Largest two-wheeler market in world  Largest three-wheeler market in the world  Fourth Largest tractor market in the world .654.278 9.979 467.872.765 403.670 9.629 2005-06 1.249 6.334 7.041 359.

The industry has.  Demand for incentives for promoting exports was ignored. other than small cars. .  Retaining the Excise Duty at 8%. last budget ensured that the stimulus pro-vided to the industry earlier in the year 09 would be continued till the industry fully recovers from the current recession which worked out very well for industry. however.Scenario before 2010-2011 Budget  The Union Budget 2009-10 failed to enthuse the slow-down-hit auto industry to a large extent.  The reduction of the additional levy on large cars and utility vehicles was also welcomed and industry hoped that further rationalization of tax rate would take place and the excise duty on utility vehicles and cars. welcomed continuation of CENVAT cuts that were announced in December last.  Budget reduced on the basic customs duty on bio-diesel giving an upper hand for all companies working on environment friendly technologies.  Recognizing the challenging times being faced by the domestic industry during time of recession previous budget did not further bring down the rates of Customs Duty last year fulfilling demands of ACMA. by the increase in the outlays for NHAI and JNNURM fueled growth in the automotive industry in the medium to long term & the auto-component industry was an indirect beneficiary of this growth. also the opportunity to rationalize excise duties on the passenger car segment was not been considered. would go down  Thrust on infrastructure development in the Budget.

600 to Rs. lower interest rate would  Due to rolling back of stimulus package. prices of big and small cars are expected to rise.  Upward revision in service-tax a hike of 1-2% of hike is anticipated  2% hike in CENVAT Price of smaller cars may further go up by Rs. 1500 . 10. VAT.000  Price of two wheeler was also expected to rise by Rs.The entire Indian auto industry is kept its fingers crossed for the transparent. The continuation of the stimulus package includes easier & softer loans. easy and simple indirect tax regime of GST which should be uniformly implemented across the states within this financial year.  Reduction in interest on car loan and two-wheeler loan attract more buyers.The manufacturers & EOUs of auto industry expect specific direct & indirect tax benefits for exports by SMEs and continuation of tax holiday for themselves.2000 Rs.  Rapid Implementation of Goods & Services Tax (GST) .  Incentives to be provided to Specialized Service Companies Undertaking R&D R&D for auto industry is crucial and important and budget expectations include specific tax breaks for R&D service providers.  Increased Export Promotion .The commercial vehicle segment of the Indian auto industry has been worst affected.Expectations from Budget 2010-2011  Continuation of Stimulus Package for Commercial Vehicle Segment . CST and other taxes under one umbrella and GST rate may be lower than the combined total of current taxes. GST aimed to bring in taxes like excise. accelerated depreciation and concessional duties would help the segment recover.

The first challenge is to quickly revert to the high GDP growth path of 9% and then find the means to cross the double digit growth barrier. Euro and Japanese Yen.118 crore. These concerns for aam aadami have gone hand in hand with credible measures for improving investment climate. Many new initiatives have been introduced for sustained and inclusive growth. concerns for inclusive growth targeting the disadvantaged sections form the defining features of the Budget. strengthening infrastructure and fiscal consolidation.010 crore for 2010-11.6 per cent. this is above Rs one lakh on saving instruments allowed already.  A unique identity symbol would be provided to the Indian Rupee in line with US Dollar. making growth more broad-based and ensuring that supply-demand imbalances are better managed.8 lakh crore. Three challenges were identified that would continue to engage Indian Policy Planners for next few years.30 per cent. As the country looks to quickly revert to high GDP growth path in the wake of uncertain times . The third challenge is to remove weaknesses at different levels of governance and to improve public delivery mechanism. Independent Evaluation Office and National Clean Energy Fund. The second challenge is to consolidate recent gains in making development more inclusive. Financial Stability and Development Council.20 per cent Income above Rs 8 lakh .  Additional deduction of Rs 20. Gold Regulatory Authority. Few of the Key features of Budget have been summed up below:  Tax rates: Income up to Rs 1.  Gross tax receipts pegged at Rs 7. Technical Advisory Group for Unique Projects. These include setting up of Mahila Kisan Sashaktikaran Pariyojana. an increase of 8.6 lakh .  New tax rates would offer relief to 60 per cent of tax-payers.46.  Fiscal deficit seen at 4.1 per cent in 2011-12 and 2012-13 respectively. .48.nil Income above Rs 1.6 lakh and up to Rs 5 lakh 10 per cent Income above Rs 5 lakh and up to Rs 8 lakh . focuses on fiscal consolidation.  Income Tax department ready with two-page Saral-2 return forms for individual salaried assesses.000 allowed on long term infrastructure bonds for income tax payers. British Pound Sterling.Indian Budget 2010-2011: Overview The Union Budget this year has aimed to focus on inclusive growth and insuring food security. therefore. non-tax revenues at Rs 1.  Government's net borrowing to be Rs 3.8 per cent and 4.  Total expenditure pegged at Rs 11. National Mission for Delivery of Justice and Legal Reforms.45. The Budget.656 crore for 2010-11.

 Interest subvention for timely repayment of crop loans rose from one per cent to two per cent.552 crore provided for infrastructure.35. 2010 in view of drought and floods in some part of the country.8 per cent in the previous fiscal.  Rs 500 crore allocated for solar and hydro projects for Ladakh region.  Propose to maintain thrust of upgrading infrastructure in rural and urban areas. capital expenditure would account for Rs 60.  Repayment of loan by farmers extended by six months to June 30.  Alternative port to be developed at Sagar Island in West Bengal.  Rs 1.130 crore in 2010-11.41. Of this.  Allocation for new and renewable energy ministry.  Government committed to ensure continued growth of Special Economic Zones development.  One-time grant of Rs 200 crore provided to Tirupur textile cluster in Tamil Nadu.  Allocation for development of micro and small scale sector raised from Rs 1. Allocation for women and child development hiked by 80 per cent.  Allocation for National Ganga River Basin Authority doubled to Rs 500 crore.500 crore to public sector banks to maintain tier-I capital.794 crore to Rs 2.9 per cent in 2009-10 as against 7.73. allocation to power sector more than doubled to Rs 5.  Government to provide Rs 16.400 crore. IIFCL authorized to refinance infrastructure projects.  Rs 200 crore provided for climate resilient agriculture initiative.  Non-plan expenditure pegged at Rs 37.  Rs 1. .47.344 crore in 2010-11 against Rs 1. bringing the effective rate of interest to five per cent.703 crore in the previous year. Defense allocation pegged at Rs 1.392 crore and Plan expenditure at Rs 7.  Mega power plant policy modified to lower cost of generation.  Fiscal deficit pegged at 6.  Rs 1.657 crore in budget estimates.  Government proposes to set Coal Development Regulatory Authority.  Clean Energy Fund to be created for research in new energy sources.  Need to take firm view on opening up of the retail.000 crore.270 crore provided for slum development programme.  Fund with initial allocation of Rs 1000 crore to provide social security to workers in unorganised sector. 15 per cent increase in plan expenditure and six per cent in non-plan expenditure.900 crore allocated for Unique Identification Authority of India.  Continuity in cash subsidy for fuel and fertilizer instead of previous practice of bonds. marking an increase of 700 per cent.

600 crore.000 in plain area and Rs 48.  Indira Awas Yojana scheme's unit cost raised to Rs 45.  Government to provide Rs 300 crore to organise 60.100 crore for rural development.500 in hilly areas. handlooms and small and medium enterprises.534 crore. move to fiscal consolidation  Signs of food inflation going to non-food items .  Status paper on public debt within six months.  Government will raise Rs 25.  Government to raise Rs 25.  Earnest endeavour to implement General Sales Tax in April 2011.  Allocation for urban development increased by 75 per cent to Rs 5.000 per year to each account holder  Nutrient based fertiliser subsidy scheme to come into force from April 1.  Plan allocation for health and family welfare increased to Rs 22.000 crore this year to meet cap expenditure requirements  GST and DTC can be introduced in April 2011  Direct tax code will be implemented April 1.  Government to contribute Rs 1.100 crore in 2010-11.740 crore to Rs 2.000 crore from disinvestment of its stake in state-owned firms. 2010.  Allocation for NREGA stepped up to Rs 40.  25 per cent of plan outlay earmarked for rural infrastructure development  Road transport allocation raised by 13 per cent to Rs 19. 2011.  Government to continue interest subvention of 2 per cent for one more year for exports covering handicrafts. One per cent interest subvention loan for houses costing up to Rs 20 lakh extended to March 31.894 crore.500 crore.  Plan allocation for Ministry of Minority Affairs rose from Rs 1.300 crore from Rs 19.  Deficit in foodgrains storage capacity to be met by private sector participation. Rs 700 crore provided.  Allocated Rs 66.800 crore to Rs 31.000 pulse and oilseed villages and provide integrated intervention of watershed and related programme.036 crore in 2010-11.400 crore in 2010-11. private investments can be expected  Need to review stimulus. carpets. 2011  Final figure may be higher if earnings in last quarters are strong  Concerned over emergence of double digit food inflation  Export figures encouraging.  Plan allocation for school education rose from Rs 26.  Exclusive skill development programme to be launched for textile and garment sector employees.  Plan outlay for Ministry of Social Justice raised by 80 per cent to Rs 4.

.This can also be translated as an increase in price of Rs 2. but that did not happen. This would lead to rise in vehicle running expenditure. 1700 5000) and small cars (Rs. 600-1500). Sports Utility Vehicles (SUVs) and Multi Utility Vehicles (MUVs) increased to 22% from 20%. The additional duty component retained at Rs.67 per liter on diesel and petrol respectively.Excise duty on big cars. 3000-15000). This may cause a marginal negative impact on sales  Tax on big cars will be charged at 22% against the previous 20% in addition to Rs 15. 000 . threewheelers (Rs. Below is the list of Union Budget 2010 Automobiles sector proposals: I) Two-wheeler / Passenger Cars  10% tariff imposed on small cars and two wheelers which until now benefited from the 8% excise tariff . 15.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.000cc  Excise tariff to be charged on Diesel and Petrol at Re 1 on the every liter . The Finance Minister in his Union Budget 2010 speech announced implementation of new tariffs on cars and other vehicles.999cc engine capacity and Rs.Indian Budget 2010-2011 and Automobile Sector Though the Union Budget 2010 did not satisfy all the expectations of the sector. The result of the Budget proposals is that the basic Excise Duty rate and Service Tax rates have converged to 10%.58 per liter and Rs 2.500-1. But experts point out that 2% hike in Excise duty was expected and should not have adverse impact on the market.  Hike in car prices due to higher input price and increase in excise tariff on steel Steel prices have already started to rise and a further pass on due to a rise in excise duties can pressurize margin of auto and ancillary companies. This increase in excise duty is expected to be passed on to the consumers along with rise in operating costs (hike in fuel prices) resulting in hike in price of two-wheelers (Rs.000 for passenger vehicles with 1. but it is anticipated to have a positive impact on the automobiles sector in the coming years as well as on the Indian economy as a whole. indicating a move to enable GST implementation from Apr 2011. 20.000 for passenger vehicles having engine capacity of greater than 2.

94 billion  Weighted deduction on in-house R&D expenditure increased from 150% to 200%. In a case where the total excise levied on individual components add up to Rs 1.government broadening the tax slabs would boost the disposable income in the hands of the middle class and is a positive sign creating a larger customer base for auto sector. will both have a positive effect on the popularity of EVs. Weighted deduction on out-sourced R&D to National Laboratories.000. which will lead to a price hike and also the increase in the price of fuel itself. the companies will only end up paying zero excise on the finished product after availing the MODVAT benefit.  Concessional tax on Solar power rickshaws due to removal of excise tariff on solar panels. Critical parts and assemblies of such vehicles exempted from basic customs duty and special additional duty with CVD of 4% being imposed . Although a concessional countervailing duty will be levied at four per cent. Also. The income of such approved research association shall be exempted from tax . The increase in the excise duty for all vehicles running on fossil fuels. . This is because it will enable companies to avail of the MODVAT benefits. this import duty reduction is believed to be hugely beneficial for the industry in the long-term.  4% of excise tariff on electric cars against the previous 8%.  Full exemption from custom tax on electric automobiles and on its components. Universities and other institutions for Scientific Research has been enhanced from 125 per cent to 175 per cent. Change in Income Tax Slab . This is the first small step.This would spur industry focus on innovation.000 and the four per cent excise on the complete vehicle is also Rs 1.  Allocation for road development increased by 13% to Rs. 198. This can result in a fall in prices maybe in next 6-7 months. R&D and product development that would increase the competiveness of the industry longer term. like subtracting the excise duties paid on the indigenous components from the total excise on the vehicle.This clause came as an optimistic note to the electric vehicle makers. 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. Research Associations. Colleges. EV movement in India has been given a push by encouraging domestic manufacturing. the reduction in import duties from around 24 per cent to about four per cent is very encouraging.

II) Commercial Vehicles  Hike in excise duty to 10% from 8%  Excise duty of Re 1 per liter imposed on diesel and increase in customs duty by 5% that has resulted in diesel price increase  Allocation for road development increased by 13% to Rs. Additionally. .January 2010 partly driven by pre-buying in anticipation of price hikes post implementation of Euro III and IV emission norms from April 2010.5-4% in 2009-10 by all manufacturers. 198. However. is likely to be passed on in the form of increase in prices and is partially negative. leading to higher disposable income for two-wheeler and passenger vehicle buyers.94 billion  Weighted deduction on in-house R&D expenditure increased from 150% to 200% Overall Impact Marginally Negative While CV prices have been increased by 3. The increased weighted deduction rate for in-house R&D would encourage higher investments.Overall Impact Marginally Negative The increase in excise duty rates by 2%. the current increase in excise duty is expected to result in further price hikes. This however is likely to be compensated by exemptions on personal income tax rates. The increased weighted deduction rate for in-house R&D would encourage higher R&D allocations and thus technical capacity in India that has become a critical automotive market. the government s thrust on rural and infrastructural development remains a key positive. the continued increase in commodity prices and cost increases post implementation of emission norms may further result in increased prices of CVs dampening the demand in 2010-11. the diesel price increase may adversely impact the profitability of transport operators and thus the demand for CVs in the short term. The government s thrust on rural and infrastructural development remains a key positive. While the demand has been strong during October 2009 .

Additionally. II. would support growth for the industry. The positives on the demand side for the automobile industry. extension of loan repayment deadline from December 2009 to June 2010 and increased subvention in interest rates from 1% to 2% resulting in effective tax rates of 5%  Increase in peak rate of excise duty from 8% to 10% may impact cost of production  Excise duty exemption to trailers and semi-trailers used in agriculture Overall Impact Marginally Positive The increase in agricultural credit target augurs well for the industry as financing availability remains one of the most critical factors.750 billion for 2010-11. The interest subvention scheme extended for a period of one year could be a positive for some SME exporters. III. Rs 9 billion allocations directed at agricultural production. the 2% subvention (earlier 1%) and extension in repayment deadline is expected to increase financial flexibility of the farmers. . IV) Auto Ancillaries  Weighted deduction on in-house R&D expenditure increased to 200% from 150%  2% Interest subvention to Small and Medium (SME) exporters extended by a year Overall Impact Neutral Increase in weighted deduction on in-house R&D expenditure would encourage companies to invest in technology development.III) Tractors   Increased focus on agriculture through four pronged approach I. through cuts in personal income taxes. Credit support to farmers by increase in agricultural credit target to Rs 3. Increase in MAT rates will have a negative impact on some ancillaries currently paying lower taxes. Reduction in wastage of produce. The Government s thrust on rural development continues with increased allocations to rural development and NREGA scheme which is likely to stimulate demand in medium term.

817.06 +6. The stocks of Punj.507.13 points or 0.35 % Change +4.70 points or 1. Bajaj Auto. The Auto index was at 6. Reliance Power and Adani Power stocks were trading high after the Finance Minister announced to double the allocation for power sector. up by 144.85 46.33.12%.45 with 44 components gaining.50% at 4.80 +48. while the broad based NSE Nifty started with a fall of 0. By mid-day the Sensex was trading up 253. at 4. Both Sensex and Nifty were trading above 1-month high. Escorts and Amtek Auto Effect on few Top Automobile Companies of India Current Price (Rs.95 +42.) 1.70 Company Maruti Suzuki Bajaj Auto Ltd Mahindra & Mahindra Ashok Leyland Tata Motors Ltd Group BUY BUY BUY BUY HOLD Change +62.714. BSE Sensex opened flat with a rise of 1.401.50 1.00.50 +102.00 +5. Meanwhile.932.50 +2. NTPC.01% at 16. Gammon India and Nagarjuna witnessed jump after the announcement of 13 percent hike in road transportation. Ashok Leyland.56% at 16.33 .56.75 points or 0.60 958. the Indian equity market responded positively and started trading over 100 points snapping earlier losses.63 with 26 components gaining. The major gainers were Maruti Suzuki.90 points or by 2.80 668.55 1.007.255. The 30-share benchmark index.30 +6.75 711.02%. the Nifty was trading higher by 72.05 Previous Close 1.991.859.35 49. The National Stock Exchange Nifty was also trading higher after the minister announced cut in fertilizer subsidy and four-pronged strategy for agriculture sector. Bharat Forge.43 points or 1.05 1.463.46 +6.Indian Budget 2010-2011 Vs Stock Market Buoyed by the positive announcement by Finance Minister in union Budget 2010-11.

70.000  Prices of Tata Heavy Vehicles have gone up by Rs.000 Rs.000 Rs.500 Rs.000  Hyundai cars also made costlier by Rs. 13.000 . 3. 70.000 while prices of Tata Passenger Vehicles have gone up by Rs.Latest Happenings 1st March 2010  Auto manufacturers announced a hike in prices of their products upto Rs.000 due to rise in excise duty  Announced another round of price hike due in April 2010 when auto companies will pass on the cost to customers to upgrade their vehicles according to new emission norms  Maruti hiked prices of its various models in range of Rs. 6. 6.000 Rs. 60. 5. 25.

html . 6.php?option=com_content&task=view&id=2605&Itemid=2 http://www. 5.html http://www.carwale.com/economy/budget/union_budget_2010/sectors/20100227_automobile.com/news/735-union-budget-2010-impact-on-the-automobile-industry.html http://www.motoroids.indiatimes. http://machinist.com/news/4387-fuel-hike-and-rise-in-duties-will-not-deter-growth-in-india.domain-b.References 1.carwale. 7.cms http://www. 2. 3.com/news/4280-industry-welcomes-union-budget-2010-11. 4.html http://timesofindia.in/index.indiamart.com/blog/expectations-auto-industry-budget-2010.html http://auto.com/union-budget-2010/Budget-2010-What-it-means-for-you-as-aninvestor/articleshow/5622547.

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