Funding of sound NBFCs likely to provide arrest of the prolonged slowdown in automotive sales
Even as the government made its intentions clear by offering additional tax sops on electric vehicle (EV) purchase, it is the announcement regarding the funding of fundamentally sound NBFCs which is expected to provide immediate arrest of a prolonged slowdown in overall automotive sales, claim the industry stakeholders.
Tightening of liquidity to non-banking finance sector (NBFCs) arising out of IL&FS scam has been one of the major contributors to the industry slowdown in the past several months. This impacted the loan availability to not only the consumers but even to the retailers and component makers down the value chain.
According to Pawan Goenka, MD at Mumbai-based Mahindra & Mahindra (M&M), it will provide some immediate results as even if 10% customers get the finances for vehicle purchase (who were earlier not getting it), it would help in reducing the slowdown by 10%. “The reforms announced for NBFC will help in reducing the rate of finance,” said Goenka. Satyakam Arya, MD & CEO, Daimler India Commercial Vehicles seconded Goenka when he said the capital infusion into banks will boost lendings to NBFC and will put them in better health and this could help the CV industry.
On the EV front, the Budget has made an outlay of additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. The government has already moved GST council to lower the GST rate on electric vehicles from 12% to 5%. To further incentivise e-mobility, Customs duty is being exempted on certain parts of electric vehicles. Earlier, Phase II of FAME with an outlay of Rs 10,000 crore for a period of three years already commenced from April 1 this year.
Commenting on the announcements regarding EV, Chetan Maini, Co-Founder at SUN Mobility, is of the view that though proposal of lowering of GST rate on electric vehicles from 12% to 5% is an encouraging signal, it would be more beneficial for the end-user, if the government also focus on reducing GST on charging / battery swapping services from 18% to 5% (same as that for public transport services). Maini is the maker of Reva, India's first electric car company which was later acquired by M&M.
According to Hetal Gandhi, Director, CRISIL Research reduction in GST on electric vehicles (from 12% to 5%) will favourable effect on purchase an electric two-wheeler and an electric taxi. However, the personal electric small car still remains unfavourable due to lack of FAME II subsidy on it.
While the government reduced customs duty on certain EV parts, it also increased taxes on some of the ICU auto parts, which have not gone down well with the manufacturers. Martin Schwenk, MD & CEO, Mercedes-Benz India said the decision on automotive parts was not expected and is not going to help create demand in the industry which is facing strong macro-economic headwinds, resulting in subdued consumer interest. “The increase in customs duty coupled with additional input costs due to the fuel price hike could lead to a rise in price of our model range.”
Naveen Munjal, MD of Hero Electric, said the cut in customs duty on lithium-ion cells would help local component manufacturers in scaling up the production thereby further reducing the overall upfront cost of electric vehicles in India.
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