The auto industry has undergone significant transformations in recent years. With rapidly evolving technology and increasing demand for EVs and new energy vehicles, the sector is experiencing rapid change. ETMarkets spoke with Rajeev Singh, Partner and Consumer Industry Leader at Deloitte Asia Pacific, to gain insights into the demands of the Indian auto sector and the potential impact of the Union Budget 2024. Excerpts:
The auto industry has experienced significant changes in technology and overall structure over the past few years. What are the main expectations of the auto sector from the upcoming budget?
Rajeev Singh: The auto industry has faced turbulence recently, with challenges like COVID-19 and rising commodity prices. While there was a rebound in 2023, demand is now sluggish globally and in India. Though passenger and commercial vehicle sales have returned to pre-COVID levels, two-wheeler sales are still below pre-COVID numbers, indicating a slow recovery in the rural economy. The industry hopes for government interventions to boost demand, particularly in rural and urban areas.
There’s also a call for clearer policies regarding various types of new energy vehicles, including flex fuel, CNG, hydrogen, and plug-in hybrids. The push in infrastructure not only creates employment but also kind of creates demand for commercial vehicles. The industry is looking for some more clarity across all new energy vehicles apart from EV and ICE as well.
What are the expectations for the EV sector in the budget?
Rajeev Singh: Globally, EV demand is slowing, including in the US, Europe, and China, partly due to reduced government subsidies. In India, while FAME III is expected to provide some consumer subsidies, the per-vehicle incentive is likely to decrease. The industry seeks additional government support for the next 4-5 years to balance the total cost of ownership between EVs and ICE vehicles. There’s also a call for flexibility in policies to include other new energy vehicles like plug-in hybrids and flex-fuel vehicles.
These vehicles, while not zero-emission like EVs, should not be classified the same as ICE vehicles. The industry also wants support in demand and overall policy, including GST rationalization.
Infrastructure for EVs is crucial as India adopts the EV ecosystem. Many people refrain from buying EVs due to inadequate charging infrastructure. How do you think the government should address this?
Rajeev Singh: I completely agree. While there’s some EV demand, it’s still not the first choice for most families, who consider EVs as secondary vehicles. China faced a similar issue but addressed it by promoting plug-in electric hybrids. The government and private sector need to collaborate to build charging infrastructure, which will take 5-10 years. This transition from ICE to predominantly zero-emission vehicles will require significant effort to make customers as comfortable with charging stations as they are with petrol and diesel.
What about including petrol and diesel under GST? How would this benefit the industry?
Rajeev Singh: This has been the discussion for a long time now on bringing petrol and diesel under GST ambit. And this has to be something which the GST council has to act upon, I would say. So, we may not see much coming out from the budget perspective, but eventually the request has been there because it helps consumers. I mean, all the industrial houses who are buying petrol or who are buying diesel to get the tax benefits, so the tax cascade that we are talking about from a GST perspective, it is important. Also, let us keep in mind that today the prices of petrol and diesel are very-very different from one state to another state and that has its own complications as well.
So, the transporters, of course, want a uniform GST, just like we had, say, at one point in time, even the cars cost very differently from one state to another state. People went to certain states to buy vehicles because they thought that the vehicles there are far less in terms of cost. So, I think that that is also another thing in terms of uniformity that one will see in terms of these prices across all the states. So, there are many pros, I would say, but yes, it does call for a kind of alignment with all the state governments, I would say, for the centre to bring this under GST.
Regarding income tax benefits and taxation for the auto and EV sectors, what are the industry’s expectations?
Rajeev Singh: The industry is hoping for the return of income tax rebates for EVs. Although FAME III is being reconsidered, additional benefits like income tax rebates could encourage consumer adoption of EVs. The vehicle scrappage policy, which was intended to boost demand for cleaner vehicles, has not yet been fully realized. The industry would like to see more incentives that drive the shift towards cleaner fuels and technologies.
What do you hope from the 2024 budget?
Rajeev Singh: We are expecting some kind of a boost from the government to drive consumption, whether it is commercial vehicles, whether it is passenger vehicles or two-wheelers, all three sectors are expecting the demand to go up. The first half of this year, the calendar year has been a little sluggish. The finished goods inventory has been going up. While demand for light commercial vehicles has gone up, demand for heavy commercial vehicles has seen a degrowth to a certain extent. So, overall, the industry would expect the government to come out with something that is going to really pep up the demand both in the rural as well as the urban market.
