Statement from Rajeev Singh, Head of Automotive sector, KPMG in India
The focus was largely to revive rural demand and pump money in infra. This will help drive consumption in rural market and support slowing core sectors such as steel & cement.
From an Auto sector perspective, there will be an increase in demand for CV and Tractor Industry. 2 wheelers will also get a bit of boost due to likely increase from rural market indirectly aided by increased allocation to MNREGA. However, PV will have a significant negative impact due to Infra Cess ranging from 1% (small vehicles), 2.5 % (medium size vehicles) to 4% (large vehicles and SUVs).
Also the announcement to deduct TDS on luxury vehicles with more than 10 lacs will dampen their demand in the short term. Ideally the government could have considered that the infra cess being collected on vehicles, to be used for giving subsidies on buying back of old vehicles (read BS2 & 3 complaint) and get them off road!
Other measures likely to negatively impact automotive companies include: benefit of deductions for Research that would be limited to 150 % from 1.4.2017 and 100% from 1.4.2020. However Extension of weighted deduction under section 35CCD for skill development will continue until 2020. Excise Duty benefits extended for parts of Electric and hybrid vehicles will continue in the next fiscal year.
Apart from increased infrastructure spending on roads, amendments being made to Motor Vehicle act will enable entrepreneurs to build and operate buses and also open up the road transport sector in the passenger segment. An enabling eco-system will be provided for the States which will have the choice of adopting the new legal framework. This is likely to benefit first generation entrepreneurs as well as improve last mile mobility in semi-urban and rural areas.
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