Finance Minister Nirmala Sitharaman’s Steps To Boost Auto Sector

Finance Minister Nirmala Sitharaman of Friday, 23 August, listed out a slew of measures to boost demand for the automobile sector in India. This included measures to increase liquidity in the hand of the consumer in the form of easier access to loans, as well as, encouraging purchase of new cars by government departments among others.

Car and bike sales in India have been witnessing a downturn for nearly a year now. Year-on-year, sales are down nearly 16 percent according to data fro SIAM. Car makers have had to resort to production cuts to prevent inventory piling up at dealerships, while many have even trimmed their workforce.

Here are the key highlights from the Finance Minister’s speech that will boost the automotive sector.

1. Easier Access To Loans

Finance Minister Nirmala Sitharaman announced an upfront release of Rs 70,000 crore to recapitalise public sector banks. In addition, banks have been asked to pass on interest rate cuts to customers.

This will directly result in easier access to loans for consumers. It will also help in reduced EMI amounts for car buyers. Loans will become cheaper for car buyers. In addition, borrowers can track their loan applications online as well as expect to get their documents back in 15 days time.

2. BS-4 Vehicles To Remain Operational

Many buyers were shying away from buying vehicles because of the incoming BS-6 emission norms. There was an underlying fear that the resale value of BS-4 vehicles would drop or the usage period would be reduced.

Finance Minister Nirmala Sitharaman has clarified that BS-4 vehicles purchased up to 31 March, 2020, can continue to remain operational for the entire period of their registration. Currently that period of registration is 15 years for petrol vehicles. In the Delhi-NCR region it is 10 years for diesel vehicles, while it is 15 years in the rest of the country.

That means buyers can use their vehicles till 2035. However, there is no clarity, if registration can be extended beyond that. Currently, in the Delhi-NCR region, no vehicle can be used beyond 15 years (or 10 in the case of diesel).

3. Revision of One-Time Registration Fee Deferred

There was a proposal for a steep hike in registration fees of vehicles. The proposal was to hike registration fee for two-wheelers by up to Rs 1,000, three-wheelers by Rs 5,000, light motor vehicles by Rs 10,000 and commercial goods vehicles by Rs 20,000.

This had dampened buyer sentiment in the market, with people putting off purchasing decisions. A hike in insurance rates also weighed on sentiment.

This revision of one-time registration fee has been deferred to June 2020.

4. Hike in Vehicle Depreciation Rate

In order to boost demand from corporate buyers for vehicles, Finance Minister Nirmala Sitharaman announced additional depreciation of 15 percent on all vehicles, taking the first-year’s depreciation that can be claimed on a new vehicle to 30 percent. This is valid up to 31 March 2020.

This will benefit buyers who buy cars and bikes in their company’s name, where the company can then show these assets in their books and claim tax benefits.

5. Internal-Combustion Cars Continue To Be Registered

In order to allay fears that the government will stop registration of petrol and diesel driven vehicles in favour of electric vehicles, Finance Minister Nirmala Sitharaman announced that both electric vehicles and internal-combustion engine vehicles will continue to be registered.

Many buyers were putting off decisions on buying new vehicles, after the government’s announcement a couple of years ago that it wants all vehicles to be electric from 2030. In the recent budget also it reiterated that it wants all small two-wheelers to switch to electric power by 2025.

The Finance Minister also said its focus is to set up infrastructure for ancillaries for electric vehicles and batteries for export.

6. Government Depts to Buy New Cars

In order to contain pollution and limit the number of vehicles on the road, there was a ban on government departments to buy new cars. However, the Finance Minister has lifted that ban to allow government departments to replace their old vehicles with new ones.

This is seen as as a step to boost demand for vehicles and give some relief to the auto sector.

7. Scrappage Policy for Old Vehicles

Many people are still holding on to old cars in the hope of the government coming up with incentives to encourage new car purchases by scrapping old cars.

The Finance Minister says the government is considering measures that include a scrappage policy. But, there has to be an infrastructure set up for it, which doesn’t exist at the moment. Scrap yards that break down vehicles into pieces for recycling will have to be set up.

Consumers will get some sort of coupon for their old vehicles, that they can use towards purchase of a new vehicle. This will take some time to be implemented.