Business economics

Digital assessment-2
Indian Budget 2019-2020
The Union Budget for 2019-20 was announced by Ms Nirmala Sitharaman, Minister for Finance
and Corporate Affairs, Government of India, in Parliament on July 05, 2019. India is all set to
become US$ 3 trillion economy by the end of FY20. The budget focuses on reducing red tape,
making best use of technology, building social infrastructure, digital India, pollution free India,
make in India, job creation in Micro, Small and Medium Enterprises (MSMEs) and investing
heavily in infrastructure.

Total expenditure for 2019-20 is budgeted at Rs 2,786,349 crore (US$ 417.95 billion), an
increase of 14.09 per cent from 2018-19 (budget estimates).

Highlights of Union Budget 2019-20

Overview of the economy

1. India was a US$ 1.85 trillion economy in 2014 and it has reached US$ 2.7 trillion in five
years, the fastest growing major economy and the sixth largest economy in world,
compared to 11th largest in 2013-14.
2. Metro rail network of 657 km has become operational in the country.
3. India target to become US$ 5 trillion economy in the next five years and might become a
US$ 10 trillion economy in the next eight years thereafter.
4. The Indian economy grew at 6.8 per cent in 2018-19 and fourth quarter growth slumped
to 5.8 per cent which was a 17 per cent quarter low.
5. Movement of cargo on Ganga is estimated to rise four times in next four years.

Major Expenditure Items

1. Total capital expenditure will be Rs 876,209 crore (US$ 131.43 billion) for 2019-20.
2. Centrally sponsored schemes have been allocated Rs 331,610 crore (US$ 49.74 billion) in
2019-20.
3. Defence budget is Rs 305,296 crore (US$ 45.79 billion) for the first time in 2019-20.
4. Amount of Rs 174,300 crore (US$ 26.14 billion) has been approved for pension in the
budget 2020.
5. The government has allocated Rs 184,220 crore (US$ 27.63 billion), Rs 79,996 crore
(US$ 11.99 billion) and Rs 37,478 crore (US$ 5.62 billion) for Food, fertilizer and
Petroleum subsidies respectively.
 Budget impact on industry
Imported cars to get costlier following customs duty hike

Cars that are fully imported into the country by luxury brands such as Mercedes, BMW, Audi,
Volvo and Jaguar-Land Rover (JLR) will see a significant price hike following a rise in customs
duty to 30% from 25%.

Custom duty on gold, other precious metal raised to 12.5%

Custom duty on gold and other precious metals increased by 2.5% to 12.5%

Start-ups, investors filing declarations not to come under to scrutiny for valuation
premiums

To resolve the angel tax issue, start-ups and investors filing declarations will not be subject to
scrutiny on valuation premiums

25% tax rate extended to firms with up to Rs 400 crore annual turnover

Earlier, the tax rate of 25% was applicable only to companies with up to Rs 250-crore annual
turnover. This has been extended to companies with turnover of up to Rs 400 crore. That will
leave only 0.7% of all companies outside of the 25% tax rate

Govt to continue strategic disinvestment in select CPSEs

Finance Minister Nirmala Sitharaman says the government will continue with its strategic
disinvestment in select central public sector enterprises (CPSEs).

Fundamentally sound NBFCs to keep getting funding from banks

Finance Minister Nirmala Sitharaman affirms that fundamentally sound non-banking financial
companies (NBFCs) will continue to get funding from banks.

RBI to take over as HFC regulator from NHB

The Reserve Bank of India (RBI) will take over as the housing finance company (HFC) regulator
from the National Housing Board (NHB)

PSU banks to get Rs 70,000 crore boost for credit improvement

State-run banks would be given Rs 70,000-crore boost for credit improvement

‘Stand Up India' scheme to continue until 2025

Finance Minister Nirmala Sitharaman says that the ‘Stand Up India' scheme will continue until
2025.
Present condition of automobile industry
It is no secret that the automotive industry in India is in a bad spot right now as the production
and sales numbers continue to drop month after month. Part of the consequences includes vehicle
manufacturers having to cut jobs as they reduce their output in an attempt to maintain their own
fiscal balances.

Some reports suggest that up to 3.5 lakh automotive jobs in India have been cut since April 2019
and more than 200 dealerships have had to shut shop. These numbers are likely to go up as the
downward trend continues. A large variety of factors have cumulatively led to this situation and
we try to understand those which seem to have played a dominant role in it.

Top 8 Reasons Behind Automotive Industry Slowdown In 2019

1. Harder To Get Loans
In the current economic environment, banks have become stricter about giving out loans,
favouring only those individuals with high CIBIL scores. Transunion CIBIL tracks and
monitors the loan repayment histories of financial consumers in India and is a trusted
establishment used by banks and financial institutions to assess a person’s credit
worthiness. So, if dealers cannot get loans as easily, then they too will order fewer units.

2. Confusion around BS6 emission standards

Bharat Stage 6, more commonly referred to as BS6, is a standard of emission norms set
by the government of India. These norms apply to both fuel and the engine. Currently,
BS4 emission norms are in effect and all car models sold today are compliant with it. The
BS6 compliant engines would be less polluting in terms of the gases and particulate
matter emitted from them.By April 2020, the BS6 emission norms will come into effect
and all car manufacturers will have to upgrade their engine offerings accordingly.

3. Uncertainty of Diesel in the BS6 era

Whether carmakers upgrade existing engines to meet the upcoming BS6 emission norms
or make new ones, it is a big investment. The extra cost will undoubtedly be borne by the
customers as well in the prices of the final product - the car. Upgrading petrol engines is
relatively cheaper thanks to the more refined nature of the fuel itself. For instance, Maruti
updated majority of its petrol engines to be BS6 compliant while keeping the price bump
to just under Rs 30,000.However, there is a huge cost in making diesel engines compliant
to BS6 standards with an expected jump of at least a lakh rupees for all diesel-powered
variants of different cars. Diesel cars already command a significant premium over their
naturally-aspirated petrol engine variants.Smaller, affordable cars which use smaller,
more fuel efficient diesel engines amount for a considerable volume of total car sales. If
these get too pricey relative to the petrol variants, fewer people are likely to opt for it. As
 a result, not all small diesel engines will continue to be offered in the BS6-era.The
increasing price of diesel fuel and its diminishing savings prospect in comparison to
petrol, is also a factor. Moreover, the use of mild-hybrid tech with petrol engines is
bridging the fuel efficiency gap between the two fuel types.The life-span limit of 10 years
imposed for diesel-engined cars in Delhi which is expected to be implemented in other
parts of the country does not improve matters.India’s largest carmaker Maruti already
announced that it will discontinue offering diesel engines altogether and its 1.3-litre
diesel can be found in nearly half of its product lineup as of now. On the other hand,
Hyundai announced that it will continue offering its models with BS6 diesel engines
too.This uncertainty from carmakers has also resulted in hesitation from those who would
likely buy a new diesel-powered car.

4. Waiting for attractive deals closer to BS6 implementation

The above mentioned points have also led to some new car buyers to wait for the BS6
deadline to draw closer in order to get the best possible deals. Dealerships and carmakers
are expected to be scrambling to get rid of new car inventory with BS4 engines while
they can still get registered. In that rush, buyers are likely to be offered ridiculous
discounts to get those models off their hands.A similar situation already happened in
2017 when the sale of BS3 vehicles was banned. Certain manufacturers, particularly from
the two-wheeler industry, were still hoping for an extension on the deadline for the sale
of BS3 models. However, when the decision and date were finalised, manufacturers
offered great discounts to get rid of their BS3 inventory.

5. The UBER-OLA Factor

Taxis have been around for many decades. However, they were always quite expensive,
hard to find and taxi drivers were infamous for their unreliable services. Today, thanks to
the boon of the smartphone and cheap internet, we have convenient cab services from
apps like Uber and Ola.In fact, in the last year or so, these two apps have gone beyond
just booking a cab; they even allow you to book autorickshaws and motorbikes for
shorter distances. With the added convenience of online fare payments, the use of these
apps for smaller commutes seems a more favourable prospect than buying your own car
and the hassles that come with it.

6. Big Cities Are Too Crowded

Speaking of the hassles of owning a car, the first one to mind is that of being stuck in
traffic. A large volume of car sales is driven by young, upcoming professionals with
growing incomes and fewer liabilities. But even if you have the money to buy a car, you
will likely spend a lot of your time driving it in congested traffic and/ or looking for a
suitable parking space. The stress of having your car scratched by a careless delivery-
rider or auto rickshaw or cabbie in traffic or in a tight parking spot is no small matter. A
 regular commute with plenty of traffic takes up a lot of time and energy as well. Time
and energy that could be spent working or resting in the back of an Uber/Ola cab during
your commute.
7. Too many back-to-back changes in the industry
When there is too much going on in terms of changes and uncertainties regarding
regulations and government policy, it is almost common sense to sit back and not act
until things have settled down. The car industry today is in a similar state. In the last year
or so, there have been numerous changes enforced by new regulations with more changes
on the way. From mandatory safety features for all new cars to increasing the road tax,
rising insurance costs to upcoming emission norms.Each of these types of changes, even
if necessary, tend to lead to an increase in prices which deters new buyers in the mass
market.

8. The Electrification Equation

Even the government’s rhetoric surrounding electric mobility and electric vehicles leaves
many uncertainties for both carmaker and buyers about what to invest in and more
critically, when to invest.Affordable EVs with sufficient range are a must for the electric
mobility shift to become reality. However, this goal is harder than it seems as the current
battery technology is not at that stage yet and neither is their charging infrastructure. For
instance, the Maruti WagonR-based EV is likely to be priced around Rs 10 lakh with a
realistic range of around 200km.Promises made and goals set are not enough for the
breakthrough that is required to make e-mobility a mass market option in India. The
production and development of electric powertrains, battery tech and charging
infrastructure is still in its early stages and will likely take another 5 to 8 years before
mass EV adoption begins.Maruti’s Small Electric Car Could Be More Expensive Than
Top-Spec Dzire.Recently, the government has reduced GST rates for EVs in India.
However, its effectiveness in the EV-push has not been as confidence inspiring as some
may have hoped, largely due to the surrounding factors mentioned above.

Reg.no:19BCC0028
Name : A. Yogesh