Budget 2016: Impact on Auto Sector

India’s 2016 Union Budget has resulted in some great and some not so great announcements that affect the auto sector and more importantly, affect the end consumer in India. As always, the Indian Government in power at the centre has announced 10,000 kilometers of new roads both on the national highway and the state highway level and improvement and upgradation of 50,000 kilometers of roads that already exist. This policy both in terms of figures and direction is identical to the announcement that the Finance Minister Arun Jaitley made last year too.

The extra roads, especially in rural and semi-urban areas though will have a positive effect on motoring in those parts. The two wheeler, commercial and tractor segment for example will definitely see a push in the right direction with more people getting access to motorable roads. Sadly, as most are privy too, urban road networks in every major city around the country continue to deteriorate and get more and more congested with every passing year and no realistic announcement to improve the traffic and road quality situation in these cities has been announced.

Of course, like with every year, cars are even more expensive than before. All cars will now have an additional infrastructure tax that will be levied. Small petrol, CNG and LPG cars will have an additional 1% of infra tax whereas smaller diesel cars under a smaller cubic capacity will get a 2.5% infrastructure tax. Diesel and petrol cars with a higher cubic capacity will be charged with a 4% infrastructure tax making them even more expensive than they are today. On top of all of this, any car costing more than Rs 10 lakh in India will be charged with an additional 1% tax. These additional taxes is because the government believes that all cars above the Rs 10 lakh price point are luxury cars and thus are applicable for an even higher tax structure than the rest.

As expected, most industry tycoons and business heads have spoken out publicly against this move. Most have spoken about how these new taxes will not only reduce demand but will hurt the auto industry in general even though the industry is one of the largest employers and capital generators in the country.

On the positive side, the government is showing some inclination towards electric mobility with a push to making Lithium Ion batteries cheaper to help out electric cars, bikes and other forms of electric transport. However, this is still a far cry from what the current government should have done to boost electric and hybrid cars.

To wrap it up, cars will be more expensive than they ever were before with even more taxation levied on the car buying audiences to help fill government coffers. Two wheelers, commercial vehicles and tractors will remain unchanged and unaffected in terms of this new pricing structure and will have better rural, urban and suburban roads to ply on. All in all, as the markets reacted by dropping down over 600 points, not a very positive budget from the current Indian government.