In her Union Budget speech on 1 February 2020, India’s Finance Minister Nirmala Sitharaman barely touched upon sops or duty incentives for the tech and auto sector. However, her speech did have a strong “Make in India” push, encouraging domestic manufacture of products and components that have so far been imported.
The auto industry, which has been seen slowing sales, had been waiting for a cut in Goods & Services Tax (GST) to give it a boost. The industry was also looking for further incentives to manufacture electric vehicles, especially with regards to batteries and components.
On the tech side, companies were looking for a boost for the tech industry. Some of that has come through in the budget, with the government announcing setting up of data centres in the country as well as ESOP tax incentives for startups.
“Data is the new oil,” says Sitharaman. “It is true that analytics, fintech and internet of things (IOT) is changing the way we deal with our lives.”
“I propose to bring out a policy to enable private sector to build Data Centre parks throughout the country. It will enable our firms to skilfully incorporate data in every step of their value chains.”Finance Minister Nirmala Sitharaman
The fine print of the budget, however, has some changes in custom duty structure on components for mobile phone manufacture. The aim is to encourage local manufacture of these components that were earlier imported such as displays, PCBs and ringer units.
For automobiles, the customs duty on import of completely built units of cars, bikes, buses and trucks has increased. Even the completely knocked down and semi-knocked down unit customs duties have increased, which will push up prices of some vehicles.
However, even customs duty on components for some automotive parts which are primarily imported have gone up, which will affect most of the industry.
Make in India Push
The government had announced customs duty rates for mobile phones, electric vehicles and their components. The idea was to gradually increase domestic production capacity in India. Customs duty rates are being revised on electric vehicles, and parts of mobiles as part of “Phased Manufacturing Plans” to discourage imports.
Customs duty has been increased on completely built units (CBU) as well as completely knocked down (CKD) buses, trucks and two wheelers. What this means is imported brands such as high-end motorcycles will become more expensive. But it will benefit companies such as Tata, Mahindra and Eicher that manufacture trucks and buses locally.
To encourage full domestic manufacture of cars, buses, trucks and other vehicles, customs duty has been hiked on CKD and semi-knocked down (SKD) units. Prices of cars from BMW, Mercedes and Audi will increase, while models from Hyundai, Maruti, Tata and other will remain unchanged largely, but there’s a catch.
Duty on catalytic converters and noble metals used in making them has been increased from 10 percent to 15 percent and from 5 percent to 10 percent respectively. With the push to BS-VI emission norms, this will increase the prices of all vehicles in the country as this is an important part of the exhaust system of vehicles.
Similarly, the customs duty of some components that were being imported for mobile phone manufacture in India has gone up. Duty has been increased on PCB, ringers and display panels. Most of these components were being imported.
For instance, Samsung, Apple, Xiaomi all assemble their phones in India, but with imported components. They will now have to either hike prices or look at local manufacture of these components.
The government has also increased customs duty on some components used in cars, including in electric vehicles, which is aimed at encouraging local manufacture. In the short term, the prices of these vehicles will increase.
However, to help domestic manufacture of mobile phones, where some components continue to be imported, customs duty has been reduced.
Overall, the budget hasn’t given the impetus that the auto sector was looking for. As far as tech firms go, the budget has given startups a bit of a push, while established players haven’t got much out of it.
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