Overall, Good Budget, Mixed for the Auto Industry - Jagdish Khattar, President, SIAM Jagdish Khattar, President, SIAM complimented the Finance Minister for presenting a practical growth oriented budget which would maintain continuity of reforms & further strengthen the manufacturing sector. Union Budget 2005-06 was awaited with a lot of expectations and some apprehensions. The budget provides for a growth environment for the automobile industry. However, the Government may have lost an opportunity to address the needs of the consumers by reducing excise duty on passenger vehicles, as the prices are set to increase because of the move to Euro III. The FM has undertaken bold initiatives on the income tax, corporate tax, and indirect tax fronts, besides announcing the launch of "Manufacturing Competitiveness Programme" an initiative towards strengthening manufacturing in India. There are many positives in this budget for the automotive industry, in the forms of reduction in corporate tax, continuation of the benefit for R&D, reduction of taxes on inputs and raw materials, and reduction in duty for electric vehicle parts. But very importantly the focus on rural development, infrastructure particularly roads and urban renewal as well as the overall focus on employment would create an environment for the growth of demand for the vehicle industry. An important factor of the budget and very welcome, is the focus not on outlays but outcomes. This will impact implementation. The robust performance in the domestic and exports market both for automobiles & auto components is an indicator of their competitiveness and if the present growth rates continue, India would be a significant exporter of automobiles on the world stage. Budget proposals seeking to increase the disposable income with consumers would enable growth. The FM has been successful in reining in the fiscal deficit at 4.3%, while taking the big steps forward on the tax reform path, setting out a road map for mobilising funds for infrastructure. Industry welcomes the higher plan allocation for projects in roads, ports and power. The outlay of Rs. 9,320 crores for NHDP including Rs. 1,400 crores for 4-laning of 4000 kms of high-density highways not forming part of the Golden Quadrilateral or the North-South, East-West Corridors, will aid in improving connectivity. Customs duty The Auto Industry welcomes the move towards rationalisation of the customs tariffs, and carrying forward the reforms by reducing the customs duty on inputs and raw materials to the industry from 20% to 15%. These announcements would strengthen India's commitment to globalisation. VAT The announcement that all states have agreed to introduce VAT from 1st April 2005 is welcome and removes the uncertainty on this major reform programme. However, we hope all the States would follow a uniform legislation for VAT implementation, in order to avoid any marked deviations/discrepancies. R&D Incentives SIAM also welcomes the extension of incentives for R & D through weighted deduction u/s 35(2AB) of the Income Tax Act for a further period of 2 years till 31st March 2007. The Industry also welcomes the increased allocation for Automotive R&D from 54 crores to Rs. 206 crores. This should help in the setting up of world class R&D and testing facilities. Also, industry hopes that issues which have not been addressed in this Budget would be addressed by the Government in the near future. These include reduction in excise duty, need for a policy for vehicle retirement and fleet modernisation to address the issues of road safety and air pollution caused by ill- maintained in-use vehicles and also encouragement to other alternative fuel vehicles. Budget Positive, but Lackluster for the Automotive Industry - Deep Kapuria, President, ACMA The Union Budget 2005-2006 is, a balanced and progressive one. The focus on infrastructure development, specially on Roads and Highways and the announcement of establishing of a SPV for Roads, Highways, Airports, etc., will impact the Indian automotive industry positively in the long run. The Finance Minister has rightly presented a non-inflationary budget which, at a time when the economy is in a growth phase, would be conducive for its further growth. However, the Finance Minister missed a good opportunity to recognise the importance of the automotive component industry as a sunrise sector that can be a major driver for the domestic market as well as exports. A lot more in terms of policy formulation was needed in order to manage the global automotive supply chains. The overall reduction in the customs duties on raw materials to 10% is also a welcome step. However, the customs duty on raw materials could have been brought down further, specially in view of the raw material duties of 0-5% prevalent in the ASEAN countries. The ASEAN countries apply a rate of 20%-30% on components and even higher on vehicles. We cannot benchmark the average rate of ASEAN duties as our peak rates: We need to recognise the Import Tariffs in ASEAN as they are applied to specific sectors like the Automotive Sector. However, the Finance Minister's assurance that specific cases of inverted duty would be addressed does send out a positive signal. We hope that ACMA's suggestion of instituting an "automatic mechanism" for reducing the raw material duties to zero for items included in FTAs would be taken up in the forthcoming Foreign Trade Policy. ACMA had requested for a reduction in the excise duty on car air-conditioners to 16 % and this has been granted by the Finance Minister. The continuation of 150 per cent weighted deduction under IT Act for R & D expenditure for two more years is also a positive step. The Finance Minister P Chidambaram's reconfirmation on the introduction of the Value Added Tax by April 1, 2005, is reassuring. The raising of exemption based on turnover from the level of Rs. 3 crores per year to, Rs. 4 crores per year is encouraging for small scale units, although the Finance Minister could have gone much further to liberalise and strengthen the SME sector. Budget to Fuel Demand and Growth - Aditya Vij, MD, GM India The budget is an encouraging one with focus on agriculture, irrigation, education and health care. Since it addresses some of the concerns of the industry, going forward, it should fuel demand and growth. As far as the automobile sector is concerned, it is not on the expected lines. The industry expected an excise duty cut on motorcars but that has not happened. Reduction of the peak customs duty from 20 to 15% and government's intention to introduce VAT from April, are welcome decisions. Auto industry is one of the growth drivers of the economy and tax concessions would have generated more volumes thereby contributing to the exchequer in many ways. Some of the other announcements made by the Finance Minister for manufacturing and R&D activities should enhance the competitiveness of the Indian industry. The intention to give thrust to infrastructural development particularly in the rural sector is a positive step and the government's commitment to continue with the reform process. These proposals once implemented effectively should have a positive impact on the industry and the economy as a whole. The challenge now is the implementation of the proposals. I hope the market will respond favourably.