Author: Alisha Sachdev

Should you buy an electric vehicle? We have crunched all the budget’s tax benefits for you

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As automakers continue to reel under sales distress, the union budget announced last week was packed with huge incentives for prospective buyers of electric vehicles.

The biggest such announcement being the income tax deduction of Rs 1.5 lakh on interest paid on loans taken for the purchase of electric vehicles.

Union finance minister Nirmala Sitharaman’s budget heralded a big oncoming transition towards electric vehicles with a host of other incentives too, including a customs duty exemption on the import of Lithium-ion batteries, which would make batteries for electric vehicles cheaper as most of them are not manufactured in the country.

Also, upfront monetary incentives for Phase 2 of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles, or FAME 2 scheme, for buyers of electric vehicles, towards which an outlay of Rs 10,000 crore has been detailed, and a proposal to lower the Goods and Services Tax (GST) rate on electric vehicles from 12 percent to 5 percent.

Hyundai’s Kona is the first electric vehicle to be launched after the union budget announcements, and also the company’s first electric sedan in India. With the tax goodies on offer, how much are you likely to save on the models currently in the market if you were looking to buy an electric four-wheeler or two-wheeler.

Calculations made by Elara Securities Research show that you could end up saving as much as Rs 1,04,160 on the interest on a three-year loan taken to purchase the newly-launched Hyundai Kona, which comes at a price tag of Rs 25.3 lakh. This amounts to a saving of 4.2 percent on the cost of the vehicle. For a 60-month loan or a 5-year loan, your savings could be higher at Rs 181,253, or 7.3 percent off of the cost of your new car.

For Mahindra E-Verito, which comes at an approximate cost of Rs 11 lakh, you could walk home with savings of over Rs 43,000 or 4 percent on the cost of your vehicle over a three-year period.

For two-wheelers, the savings are higher. Let’s take the Athewr 450 by Ather Energy for example. For the electric scooter which comes with an on-road price of Rs 1.22 lakh, you could avail an exemption of up to Rs 10,950 or 8.9 percent of the total cost of the scooter, for a three-year loan. The amount you save could be as high as Rs 19,619 or 16 percent of the vehicle cost for a five-year loan.

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Budget 2019: Lack of stimulus package, vehicle scrap policy disappoints auto sector

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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While Finance Minister Nirmala Sitharaman’s Union Budget brought cheer to the electric vehicle (EV) sector, it failed to meet most demands of the auto sector.

The auto industry was expecting a cut in GST, simplification of the compensation cess, an announcement for the implementation of the vehicle scrap policy and a stimulus package, however, none were part of the Budget dossier.

“…the auto industry is currently going through a very difficult time and the industry was expecting some form of a stimulus package in the Budget in line with what had been done by Government during the previous two similar slowdowns. It is disappointing that the FM has not recognized the distress in the auto sector and not come out with any kind of support or stimulus,” Rajan Wadhera, president of Society of Indian Automobile Manufacturers (SIAM), said.

Wadhera welcomed the support measures announced for the adoption of electric vehicles, but added that they “will not help the automotive industry in emerging from the current steep slowdown it is facing today.”

Auto dealers and original equipment manufacturers were gunning for implementation of the vehicle scrappage policy and seeking MSME status for auto dealerships, both of which demands were left out in the Budget.

Instead, the finance minister announced an additional cess on petrol and diesel, which the industry is afraid might further drive down sentiment and increase the cost of vehicle ownership in an industry that’s already battered by a historical decline in demand. The industry had demanded a reduction in customs duty on SKD (semi-knocked down) and CKD (completely knocked-down vehicles)

However, one saving grace was the measure announced to improve the health of “fundamentally sound” NBFCs, and small businesses.

The auto industry largely reflects the state of the economy, and plummeting auto sales have coincided with a 20-quarter low in economic activity. The finance minister announced several measures for MSME lending, like the interest subvention scheme for which Rs 350 crore has been earmarked, and also the creation of a platform for MSME financing.

Auto dealers were disappointed by the Budget. Jay Kale, Vice President at Elara Capital, told CNBC-TV18 that the time to implement the vehicle scrappage policy was now more pressing than ever.

According to experts, the industry could see a growth pickup if the overall economic growth improves, as projected by the Economic Survey.

“There isn’t much in the budget for the auto industry, but if overall GDP growth happens as projected, then the auto industry will benefit too”, said Ashish Kale, President, Federation of Automobile Dealers Association.

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Union Budget 2019: EVs take the spotlight in FM Sitharaman’s speech

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Further consolidating its position on the adoption of electric vehicle (EV adoption), the government today announced a host of incentives for buyers of electric vehicles.

Finance minister Nirmala Sitharaman, in her Budget speech, said that the government envisions India to leapfrog into a global EV manufacturing hub.

The inclusion of solar storage batteries and charging infrastructure will also boost these efforts, she added.

Sitharaman said that the government has already moved the GST council to reduce the GST rate on electric vehicles from 12 percent to 5 percent.

Further, in a big boost for buyers of EVs, Sitharaman announced a major tax incentive in the form of an Income Tax deduction of Rs 1,50,000 on loans taken for the purchase of an electric vehicle.

Furthermore, a special additional excise duty of Re 1/litre on petrol and diesel has also been announced, which might act as a fresh incentive towards the adoption of alternative fuels.

On the FAME II Scheme which commenced from April 1 this year, Sitharaman said, “The FAME II scheme has taken wings. The main objective of the scheme is to provide necessary charging infra and incentivising easy and affordable mode of transportation for the common man.”

Sitharaman also outlined the outlay for the second phase of the FAME scheme, which entailed a budget of Rs 10,000 crore for three years commented April 2019.

She said the scheme offers upfront incentives on the purchase of EVs and establishing the necessary infrastructure.

Only advanced batteries and infrastructure will be incentivised, she said.

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Budget 2019 wishlist: Auto sector pins hopes on GST cut, implementation of vehicle scrappage policy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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India’s first woman Finance Minister Nirmala Sitharaman is set to present this year’s Union Budget on July 5. This apparently would be her first major assignment ever since her appointment to finance ministry.

As usual, the government is expected to come out with fresh policies and amendments to existing schemes, impacting farmers to the middle class, entrepreneurs, professionals and corporates.

Investors have high hopes from the new government’s maiden budget against the backdrop of a strong election mandate.

Following are the pre-budget expectations of the auto sector:

• With auto sales seeing a double-digit slowdown this financial year, the sector expects Budget 2019 to spur the much-needed demand.
• The industry is gunning for a reduction in the GST rate on vehicles to 18% from 28%, especially for small cars and two-wheelers.
• The industry also expects the compensation cess levied over GST to be simplified.
• Another pressing demand from the industry is to implement and incentivise the vehicle scrappage policy at the earliest.
• Auto dealers are also looking forward to a special package for lending to the auto sector, and more liquidity in the NBFC system.
• Lastly, there is also a demand to bring down the customs duty on CKD (completely knocked down) vehicles from 15% to 10%.

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Maruti Suzuki invests in vehicle scrapping technology in tie up with Toyota unit

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the Narendra Modi government is mulling to bring back the vehicle scrappage policy, CNBC-TV18 has learnt that Maruti Suzuki has made investments in the auto scrapping technology in partnership with Japanese auto major Toyota.

The auto industry has had a longstanding demand from the government – enacting the vehicle scrappage policy. Over the years, it has seen consultations, deadlocks and many changes, but now as the government is in the final stages of formulating it. While the vehicle scrapping policy has been a debate between the government and the industry for the last five years, both sides now seem to agree that the time to implement the policy is now.

Sources in Maruti Suzuki have told CNBC-TV18 that the company has an investment in developing vehicle scrapping technology in partnership with a Japanese company.

Top sources in Maruti Suzuki have indicated that they’re running a pilot project in a joint venture with a Japanese company, which is believed to be a unit of Toyota.

Maruti Suzuki chairman RC Bhargava told CNBC-TV18 that they’re interested in learning the technology of recovering end of life vehicles and that it is not a large-scale project at the moment.

Last year, Mahindra and Mahindra became the first OEM to run a fully automated scrapping centre in a joint venture with state-owned MSTC.

This comes on the back of the formulation of a new, albeit not mandatory, vehicle scrapping policy proposal, and industry watchers flagging concerns over the lack of proper scrapping infrastructure and technology in the country.

CNBC-TV18 had reported on June 21 that the government is looking at increasing the compliance burden for vehicles which are over 15 years old and is no longer mulling a mandatory scrapping scheme for older vehicles.

Several rounds of consultation have taken place among various ministries under NITI Aayog’s National Mission for Transformative Mobility and the theme of the discussions has been that new vehicle sales won’t be promoted at the cost of old but there will be more bumps on the road for older vehicles, reported CNBC-TV18.

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Motown liquidity blues: Already hit by slowdown, auto sector is fighting the domino effect of IL&FS crisis too

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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For the Indian automobile sector to revive, lending to the industry must return to pre-IL&FS crisis levels – that’s the word from auto dealers across the country, who, already having been hit by a record slowdown in sales, are now also pressed for funds.

After the IL&FS collapse of September last year, banks and NBFCs have turned cautious towards lending to the auto sector.

While retail disbursements in the auto loan category are down about 20 percent across categories on account of poor demand, dealerships are battling a double whammy of lack of credit availability along with piling inventory, and with it, piling costs.

“Earlier dealers used to enjoy unsecured loan provisions. There was access to a lot of funds. But for the last one year or so, that’s become a lot more stringent. Across the industry we’ve seen a pull-back of funds from the finance industry,” Amar Sheth, owner of the Shaman Group, told CNBC-TV18.

The pain doesn’t end there. Mounting defaults on loans given to the auto sector, and falling real estate prices have meant that banks are asking for unprecedentedly high collateral even for inventory funding, and in the case of old collateral, also reevaluating it on the loans they’ve given.

“NBFCs and Banks are both becoming very risk sensitive. Dealers have been asked to give collateral even for inventory funding. Where collateral is available, they’re reevaluating collateral because real estate prices have gone down. Even with good borrowers, banks don’t want to take any risks by extending any funding limits which are not backed by collateral. This is causing stress on dealerships,” said Nikunj Sanghi, director, Federation of Automobile Dealers’ Association.

Depressed margins have also dissuaded auto dealers from providing substantive discounts on prices to trigger demand – that’s also added to stock pile-up.

Liquidity woes may continue for some time

Bankers that CNBC-TV18 spoke to suggest that the situation is unlikely to improve anytime soon.

“There is some risk aversion to dealership funding in the last six months. That may continue for some time. The wholesale or dealer finance book is down as banks have become more cautious to lending in that space. It’s not necessarily a liquidity problem,” Vyomesh Kapasi, managing director of Kotak Mahindra Prime, the auto loans arm of Kotak Mahindra Bank, told CNBC-TV18.

As inventories piled up to even 60 days in the case of passenger vehicles (PVs) and 2-wheelers, sources told CNBC-TV18 that auto dealers put their foot down and refused to accept more inventory from OEMs, who have run out of factory space to park their unsold stock.

Maruti Suzuki, the largest PV-maker in India, has also extended an additional 15 days to the interest-free credit period it gives to dealers to buy inventory. However, while there has been some moderation in inventory, the pain is far from over.

FADA data shows inventories in the month of May were at 35-40 days for PVs, 55-60 days for 2-wheelers and 45-50 days for CVs. Each unsold car adds to financing woes for auto dealers.

“The problem that happened with the liquidity started after the collapse of IL&FS. The reason for its collapse was very clear — there was a mismatch between borrowing term and lending term for its undertakings. Lending was long term and IL&FS couldn’t repay short term borrowing. Specifically, in auto loans, most good NBFCs don’t have this mismatch, and are therefore not in a similar position as IL&FS.” Nikunj Sandhi told CNBC-TV18 in an interview.

The answer could lie in a special provision for the auto sector when it comes to financing.

“We want that a special package should come in for NBFCs so that liquidity is not a concern in the market. And banks should give auto loans the way they were giving pre-IL&FS collapse. If that happens, demand pickup will happen in the industry,” he concluded.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Rationalised GST, industry status… What the auto dealers expect from the Union Budget 2019

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A few years back, the Central government and the Indian auto industry prepared the Automotive Mission Plan (AMP) 2026 with an objective to bring the domestic industry among the top three of the world in engineering, manufacture and export of vehicles and components. The mission also aims at growing the sector’s value to over 12 percent of the country’s GDP and generating an additional 65 million jobs.

That was, however, in 2016. At present, the plan is viewed with skepticism at best and serious concern at worst. In the last ten months, the auto industry has posted a consistent decline in sales. The alarm bells started to ring from the last festive season itself, usually the peak sales months, when new registrations for passenger vehicles declined 11 percent year-on-year (YoY)and over 14 percent in the case of passenger vehicles, according to a Crisil report. Approaching another festive season, things are only looking worse.

High costs of vehicle ownership owing to new third-party insurance norms, rising cost of financing and soaring fuel prices kept the demand low in the July-Sept period last year. Matters are looking worse now, with an additional liquidity squeeze, and a 20-quarter low in economic growth keeping customer sentiment low. Vehicle registration data compiled by Federation of Automobile Dealers Associations of India (Fada) shows that de-growth in the sector has continued for the second month of FY20, with total registration numbers dropping 7.5 percent YoY. The Fada said it looks forward to a ‘progressive budget’ to boost consumer sentiment.

So, what do dealers, the crucial link between OEMs and customers, whose health indicates the health of the sector and is a good indicator of the economy at large want?

A simplified, rationalised GST

The primary demand seems to be a rationalisation of the GST rate on vehicles, and a simplification of the complicated compensation cess levied on the GST imposed on vehicles.

“Currently, we have a very complicated method of calculating compensation cess, depending on length of the car, ground clearance, engine size and petrol or diesel version, which makes it very confusing. I don’t know why it needs to be so complicated,” said Amar Sheth of Shaman Motors. “Of course we’re looking at a rate cut from the 28 percent slab too, which should provide a large impetus to car sales,” he added.

Currently, automobiles are placed in the highest tax bracket of 28 percent in the GST system, next to cement, luxury and sin goods.

Market analysts CNBC-TV18 spoke to anticipate that a 10 percent GST rate, though it will be a huge demand trigger, is unlikely to be announced before the implementation of the BS-VI emission norms from April next year. Manufacturers have indicated that the introduction of BS-VI engines will increase the cost of vehicles by 10-15 percent. The government is likely to offset the increase in price with a cut in the GST rate, which will also boost sentiment.

“Another pain-point for us is our held-up money in GST,” Gautam Modi of Modi Hyundai pointed out. The Fada this week sent a representation to the GST Council ‘on the undue hardship caused to auto dealers on charge of interest on gross value instead of NET of ITC value in case of delay in monthly GST payment’, according to a press release issued by the association.

While GST rates, strictly speaking, are outside the budget’s purview, the budgeting provision from the loss in revenue is expected to be announced in the Budget.

Scrappage policy

To speed up replacement cycles and incentivise customers to make new purchases, automobile dealers have made a strong case for the Vehicle Scrappage Policy for both commercial and private vehicles to be provisioned for in this Budget.

“The only way to take old and polluting BS-III and BS-IV vehicles off the roads is by giving the customer an incentive to buy a new car,” said Nikunj Sanghi, Director, Fada. The government, however, has indicated a mandatory scrapping policy for 20-year-old vehicles, but it is considering hiking re-registration fee for such vehicles and also increase the compliance burden on them.

Dealership lending

 “Dealers earlier used to enjoy a lot of unsecured loans from banks and NBFCs, but over the last six months we’ve seen a pullback of funds from the finance industry. Funding is important to keep any business ticking, and for auto dealers the costs of inventory financing form a large chunk of expenses,” Amar Sheth said.

“The problem that happened with liquidity started after the collapse of IL&FS. The reason for its collapse was very clear – there was a mismatch between borrowing term and lending term. The lending was long term and IL&FS couldn’t repay short-term borrowing. Specifically in auto loans, most good NBFCs don’t have this mismatch, and are therefore not in the similar position as IL&FS. We definitely want a special package for NBFCs so that liquidity is not a concern in the market, and they should give auto loans the way they were giving pre- IL&FS collapse. If that happens demand will pick up,” said Sanghi.

Industry status for auto dealers

Sanghi also pointed to the auto dealers’ association demand for being recognised as an MSME industry to reduce cost of funds required to be put towards working capital. As dealerships generate millions of employment opportunities annually, the benefits of being accorded industry status will give a huge fillip to the industry, he observed.

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Piaggio India cautious on electric vehicle spending, says EV infrastructure still not ready

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Piaggio Vehicles, the country’s second-largest three-wheeler maker, has voiced concerns over the government’s electric vehicle-related policies.

Diego Graffi, MD and CEO of Piaggio Vehicles, told CNBC-TV18 that the electric vehicle infrastructure is still not ready and the firm will be cautious in making investments in the space.

Piaggio, the Indian arm of the Italian automaker,  said it plans to invest Rs 300 crore in the next three years in India, but only a “very small part” of it will be used towards electric vehicles as the plan was validated two years ago, when the talk of electric mobility in India wasn’t as serious and resembled hearsay and rumours.

“We have lined up investments worth more than Rs 300 crore in the next three years to reinforce and expand our penetration in the three-wheeler space in India. We still have a huge space for growth here. Out of the Rs 300 crore, only a small part so far has been dedicated to electric vehicles because this plan had been validated more than two years ago when hardly anybody was talking about electric mobility in India. However it is not only a matter of producing electric vehicles but also about creating infrastructure and the eco-system to make these vehicles operational,” Graffi said.

Graffi’s comments come amid reports that the government plans to ban sale of internal combustion engine (ICE) three-wheelers by 2023 along with sales of less than 150 cc two-wheelers by 2025.

“We are looking at that (the government proposal) very seriously”, Graffi said.

“The recommendation is impacting our business very seriously,” Graffi said, but cautioned that “with that deadline, it is not only a matter of producing electric vehicles but also to create the conditions and infrastructure to render these vehicles operational.”

Like Piaggio, other automakers such as Bajaj Auto and TVS Motor have also raised concerns over the government’s electric vehicle-related policies, calling it “unrealistic” and “ill-timed”.

Piaggio plans to start production of its first-ever range of entirely in-house E-three-wheeler at its Baramati plant in Maharashtra.

The first line of the vehicles will go into production from September this year and is likely to be rolled out before the end of the year. The vehicles are currently at the development stage.

Graffi said Piaggio will expand its focus on the alternative fuels space as well. “The alternative fuel segment is giving us a lot of opportunity in India and also outside. 90 percent of our Vespa sales, for example, come from alternative fuels” he said.

Piaggio on Friday launched four new three-wheelers marking its entry into the mid-body segment of three-wheeler passenger vehicles. The new range, titled Apé City Plus comes in petrol, diesel, CNG and LPG variants, and also with four different colour schemes.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Eicher Trucks and Buses unveils India’s first BSVI-compliant commercial vehicle range

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Eicher Trucks and Buses, a unit of Volvo Eicher Commercial Vehicles (VECV), unveiled India’s first BSVI-compliant line of commercial vehicles today. The Eicher Pro 2000 series of light and medium duty trucks was launched in two variants, the Eicher Pro 2049, a light-duty mini truck, and the Eicher Pro 2095XP, with a 7.2 tonne payload.

The trucks were also launched in BSIV variants, which will be available for sale immediately. The BSVI trucks, however, won’t be seen on the roads until after the new norms are implemented.

“We don’t think we can start selling the BS VI trucks immediately. They’ll be sold after BSVI-compliant fuel becomes available in fuel stations across the country,” Vinod Aggarwal, CEO and MD of VECV, told CNBCTV18.

“We expect pre-buying before BSVI implementation September onwards, which should  help industry start growing again”, he added.

Speaking of the higher costs of the new BSVI-compliant trucks, Aggarwal said: “The price increase for BSVI trucks can be in the range of 10-15 percent. The increase in price will also differ from variant to variant. Higher tonnage trucks, for example, will have a lower price hike, but the increase for lower tonnage trucks can be high.”

However, for the BSIV variant, the price increase will be marginal as compared to the older Pro 1049 models, according to Vishal Mathur, Senior Vice-President, LMD trucks, VECV.

VECV also has plans to export the Pro 2000 trucks to advanced South Asian markets such as Indonesia, Malaysia, Thailand and South Africa.

“Since these trucks are developed in line with our vision of modernisation of commercial transport, they can compete with any Japanese trucks and can be easily sold in markets where so far only Japanese trucks are sold. For this, we will also leverage our Volvo Group network,” Aggarwal pointed out.

Export sales for Eicher Trucks and Buses (ETB) and Volvo Trucks India (VTI) fell over 50 percent for the month of May year-on-year. Domestic sales for the same month were down 19.7 percent year-on-year.

However, Aggarwal is optimistic and hopes the market will revive as economic activity picks up again. “There is a strong central government in place now and although the rate of growth right now is only 5.8 percent, there is no reason to doubt that the economy will grow in the 7-8 percent range in the future. We are clear that the CV industry will do well in the medium to long term, and since truck sales are always linked to the state of the economy, we are quite optimistic,” he said.

VECV has also extensively leveraged its experience in manufacturing Euro VI engines for Volvo to launch the new range of trucks. “We have six years of experience in making Euro VI engines, and we have incorporated those learnings in making this BSVI-compliant line of trucks. Considering that, we are at an advantageous position with respect to our competitors,” Aggarwal noted.

He added that fast-modernising logistics technology will also quicken replacement cycles and boost sales, as there will be more focus on productivity. “Demand for trucks will also increase as the popularity of the hub and port model grows,” he said.

Bharat Stage – VI or BS VI emission norms will be implemented in India from April next year. The government decided to upgrade directly to BSVI norms from the BSIV norms that are currently implemented in the face of rising vehicular emission.

The new line of trucks are primarily meant to cater to the e-commerce and logistics industry, with a focus on low turnaround times for faster deliveries and intra-city distribution.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow