While Finance Minister Nirmala Sitharaman may not have announced any direct fiscal measures for the automotive industry in the latest national budget, there are many indirect steps that could impact car owners as well as the prices of new cars.
A scrappage scheme for retiring your old beater car
The Centre will be coming out with a voluntary scrappage scheme for getting old vehicles off the roads, however, more details on the scheme will be released by the road transport ministry in the next fortnight. Personal vehicles older than 20 years and commercial vehicles older than 15 years will be targeted in the scheme but the finance minister did not mention whether there will be any incentives for the vehicles owners to discard their older vehicles.
However, last week the road transport ministry had also proposed a green tax which would disincentivise the use of older, more polluting vehicles. A fee to the tune of 10-25% of road tax will be charged at the time of renewal of registration certificate after 15 years for personal vehicles. Vehicles will also undergo an automated fitness test and the registration of vehicles which fail to clear it will not be renewed.
“I believe there will be an incentive to scrap vehicles on top of the disincentive to not scrap in terms of the proposed Green Tax. Without that the scheme will not take off,” said Pawan Goenka, managing director of Mahindra and Mahindra. “To the best of my knowledge, the concerned department in the government is reasonably convinced that an incentive is required.”
Price hike maybe averted due to a reduction in steel prices
The reduction of import duty on several types of steel to 7.5% from 12.5% will help soften the commodity costs for automakers, potentially preventing another round of price increases. Manufacturers were considering another round of price increase after an increase at the beginning of this year due to rising input costs. Steel prices neared an all-time high, rising by more than 60% over the lows of 2020.
But premium and luxury cars could still get more expensive
The finance minister hiked the import duty on several auto parts like electricals, toughened glass and engine components among others to support the domestic industry. However, this could lead a price increase of up to Rs 1.5 lakh on luxury cars in the short term as luxury and premium car makers currently source many such components from overseas. The impact on domestic, affordable models could be less due to a high degree of localisation.
Martin Schwenk, Managing Director & CEO, Mercedes Benz India, the country’s largest luxury car maker told ET, the increase in the rise in auto component duties is unexpected in such revival period, and it will increase the production cost, leading to higher cost for consumers
Already reeling under the rising input cost and adverse currency movement, almost all the luxury car makers had increased vehicle prices in January by 2-4% and this move may lead to a further spike in prices by 1-5% depending on the vehicle makers. The vehicle makers may absorb a part of the cost hike and may pass on the cost partially to support improving demand.
“The increase in customs duty on certain auto parts to 15% will further increase input costs and prices for cars which depend on specialised components which cannot be manufactured locally due to unviable volumes,” said Gurpratap Boparai, managing director, Škoda Auto Volkswagen India.
Price of used cars can be impacted
The prices of used cars are likely to be impacted due to the proposed green tax which buyers of used vehicles will have to pay for after it gets 15 years old. A stringent fitness certification regime could also bring down the usable life of cars, further impacting their resale value.
Fitness tests may require owners to replace several expensive parts on their cars to require certification of road-worthiness, pushing the consumer preference towards younger used cars, said Ravi Bhatia, president at Jato Dynamics, an automotive business intelligence firm.