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To boost investment in the sector, it is important to iron out issues in the current PLI and thereby better position India’s automobile sector to compete globally.“>
The Union Budget 2025 is upon us and three macro trends are standing out. In the first week of January the Reserve Bank of India (RBI) lowered estimates of growth in GDP from 7.2% to 6.6%. Prior to this, it was evident that Q2 of the current financial year was clocking modest growth for the industry in India, on account of the slower pace of corporate earnings. Furthermore, the government expenditure in the first half of the fiscal was much lower than it used to be in the previous years, contributing to the slower growth.
However, with almost half the industrial GDP of India flowing in from the automobile sector, Finance Minister Nirmala Sitharaman should focus on the sector’s capability to drive India’s growth. India’s auto industry is undergoing a transformative phase due to a blend of technological advancements, evolving consumer trends and a growing appetite for hybrid & electric vehicles (EVs). India has therefore emerged as a pivotal player in the international automotive arena offering abundant investment opportunities. In first half of FY25, automotive exports from India rose by 14%, with shipments reaching 2.53 million units, up from 2.21 million units in the same period last year.
While all of this is further fueled through supportive policies such as FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) Scheme and National Electric Mobility Mission Plan (NEMMP) 2020, the Union Budget needs to look at further incentivising the industry to stimulate industrial growth which is tepid for the last two quarters.
Reducing the GST rates on auto compensation cess
Reduced taxes could lower the overall price of vehicles, thereby increasing demand. This in turn would boost production and improve capacity utilisation. One of the demands of the Auto industry is the reduce the GST rate on passenger cars which is between 43% to 50% (GST of 28% and remaining Compensation cess collected by the Central Government to compensate States for loss of revenue if an)y. While this cess falls in the exclusive domain of the Central Government, the rate needs to be recommended by the GST council, for which there may not be any time now. Can we then atleast expect the Budget to declare an intent of reducing the compensation cess if not actually reducing it?
Ironing out issues in the current PLI and improving cash flows through fiscal measures
To boost investment in the sector, it is important to iron out issues in the current PLI and thereby better position India’s automobile sector to compete globally. The budget could also look at increasing the period for carry forward of tax losses under income tax as gestation period is high in case of this industry. Budget can improve cash flows of EV manufacturers, who have an inverted duty structure, by expediting refund of GST. An amnesty scheme under Customs may also help the Auto sector to come out of classification litigation largely on import of component parts, especially where credit is available on payment of taxes. It will help the sector focus more on improving its efficiencies than fighting with the taxman.
Altering the income tax rates or increasing standard deductions to boost demand
The Budget needs to look at making provisions that will help put more money in the hands of the consumers and encourage them to purchase two-wheelers or cars. One way to do this is by lowering income tax rates or increasing standard deduction, which will result in higher take-home pay for individuals, thus creating more disposable income. Additionally, making loans more attractive through special rebates, such as lower interest rates or tax breaks on loan repayments, would reduce the financial burden on consumers, leading to higher borrowing, and driving demand in a critical sector like automobiles. These steps will also provide relief to middle-class and low-income groups, improving their financial security, while promoting economic equality and encouraging broader participation in the consumer market.
One of the key expectations from this year’s Budget is a strong focus on accelerating economic growth. As we eagerly await the budget announcement on February 1, I believe that the automobile sector must be prioritised as it plays a pivotal role in for India’s growth story.
(Dr Waman Parkhi is Partner and National Leader of Automotive (Tax) at KPMG in India. Views are personal.)
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India’s auto industry is undergoing a transformative phase due to a blend of technological advancements, evolving consumer trends and a growing appetite for hybrid & electric vehicles (EVs). India has therefore emerged as a pivotal player in the international automotive arena offering abundant investment opportunities.
To boost investment in the sector, it is important to iron out issues in the current PLI and thereby better position India’s automobile sector to compete globally.“>
The Union Budget 2025 is upon us and three macro trends are standing out. In the first week of January the Reserve Bank of India (RBI) lowered estimates of growth in GDP from 7.2% to 6.6%. Prior to this, it was evident that Q2 of the current financial year was clocking modest growth for the industry in India, on account of the slower pace of corporate earnings. Furthermore, the government expenditure in the first half of the fiscal was much lower than it used to be in the previous years, contributing to the slower growth.However, with almost half the industrial GDP of India flowing in from the automobile sector, Finance Minister Nirmala Sitharaman should focus on the sector’s capability to drive India’s growth. India’s auto industry is undergoing a transformative phase due to a blend of technological advancements, evolving consumer trends and a growing appetite for hybrid & electric vehicles (EVs). India has therefore emerged as a pivotal player in the international automotive arena offering abundant investment opportunities. In first half of FY25, automotive exports from India rose by 14%, with shipments reaching 2.53 million units, up from 2.21 million units in the same period last year.While all of this is further fueled through supportive policies such as FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) Scheme and National Electric Mobility Mission Plan (NEMMP) 2020, the Union Budget needs to look at further incentivising the industry to stimulate industrial growth which is tepid for the last two quarters.Reducing the GST rates on auto compensation cess
Reduced taxes could lower the overall price of vehicles, thereby increasing demand. This in turn would boost production and improve capacity utilisation. One of the demands of the Auto industry is the reduce the GST rate on passenger cars which is between 43% to 50% (GST of 28% and remaining Compensation cess collected by the Central Government to compensate States for loss of revenue if an)y. While this cess falls in the exclusive domain of the Central Government, the rate needs to be recommended by the GST council, for which there may not be any time now. Can we then atleast expect the Budget to declare an intent of reducing the compensation cess if not actually reducing it?Ironing out issues in the current PLI and improving cash flows through fiscal measures
To boost investment in the sector, it is important to iron out issues in the current PLI and thereby better position India’s automobile sector to compete globally. The budget could also look at increasing the period for carry forward of tax losses under income tax as gestation period is high in case of this industry. Budget can improve cash flows of EV manufacturers, who have an inverted duty structure, by expediting refund of GST. An amnesty scheme under Customs may also help the Auto sector to come out of classification litigation largely on import of component parts, especially where credit is available on payment of taxes. It will help the sector focus more on improving its efficiencies than fighting with the taxman.Altering the income tax rates or increasing standard deductions to boost demand
The Budget needs to look at making provisions that will help put more money in the hands of the consumers and encourage them to purchase two-wheelers or cars. One way to do this is by lowering income tax rates or increasing standard deduction, which will result in higher take-home pay for individuals, thus creating more disposable income. Additionally, making loans more attractive through special rebates, such as lower interest rates or tax breaks on loan repayments, would reduce the financial burden on consumers, leading to higher borrowing, and driving demand in a critical sector like automobiles. These steps will also provide relief to middle-class and low-income groups, improving their financial security, while promoting economic equality and encouraging broader participation in the consumer market.One of the key expectations from this year’s Budget is a strong focus on accelerating economic growth. As we eagerly await the budget announcement on February 1, I believe that the automobile sector must be prioritised as it plays a pivotal role in for India’s growth story.
(Dr Waman Parkhi is Partner and National Leader of Automotive (Tax) at KPMG in India. Views are personal.)
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