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Ask an Expert - Auto

Abdul Majeed

Partner, Price Waterhouse, and auto expert

Topic: Auto

Increased allocation for infrastructure project, employment and demand generation in the rural economy in the coming Budget should give the much-needed push to the auto sector. Incentives should be provided for replacing old vehicles. That will generate demand and address pollution-related issues. In addition, an overall growth-oriented Budget will set a positive tone. Allocation of funds for development of electric vehicles (EV) and more subsidies for consumers will boost EV sales in the country.

An invention is required to tweak vehicles for less pollution. What do you see the government doing for this in the Budget?

I expect the Budget to include incentives to replace old vehicles. In addition, more incentives can be provided for environment-friendly vehicles.

With the government's push to BS-VI norms, what incentives can be provided in Budget 2016 for smooth adoption of these norms?

Most oil firms are owned by the government, which is committed to supporting the oil sector as long as the fuel is BS-VI-compliant. I expect some allocation in the Budget towards this.

Growth of the automobile industry, especially in Delhi, causes pollution problems. Refineries need to start producing Euro-IV standard fuel to check these issue. Also, royalty outflow charged by the auto sector should be be reined in. Is the government likely to do something on this?

Yes, pollution is a pressing issue for major cities in India and we need to address it in a holistic manner. We need to expedite the process and replace old vehicles (BS-I BS-II), and implement BS-IV norms across the country. This will also require refineries to make necessary investments to provide the required fuel in compliance with BS-IV norm across the country. The government is committed to making investments and the auto industry should also play its critical role to move to BS-VI by 2020. In addition, more incentives should be given to promote small environment-friendly vehicles that will help develop and endorse sustainable mobility in India. As far as royalty is concerned, it depends upon where the product development initiatives are taking place, if they are happening abroad and the Indian entity is enjoying the benefit, the outgo will be more. Rather than putting a cap on such expenses, we need to see how we can encourage companies to undertake more research & development activities in India. We can definitely look at better tax incentives, provide an enhanced ecosystem for research & development activities, as well as an improved IPR and contractual enforcement obligation regime. This will allow companies to develop more in India and Indian entities will then earn royalty income in the future.

Does the auto sector need separate Budget allocation for R&D, aimed at tech and energy innovation that can be used to incentivise ‘Make in India’ initiatives?

Technological and energy-efficiency-based innovations require huge investments. Support will be required from the government. If incentives are provided, more innovation will happen, and this will help put India on the global innovation map. The government should engage with stakeholders like nodal automotive associations and provide the best possible incentives to encourage auto players to increase their efforts in the area. In the coming Budget, if environment-friendly vehicles are provided additional support by way of tax reduction, it will encourage and act as an incentive for people to buy these vehicles.