Union Budget 2007 – Air of Expectancy Binod Agarwal, President Dear friends, When this issue of FADA Journal reaches you, the Hon’ble Union Finance Minister, perhaps, would have already presented the Union Budget 2007. The presentation of Union Budget, in the not too distant past, frightened the common people, as it used to be virtually an exercise to increase taxes on various items for raising resources largely for the burgeoning debt servicing & maintenance expenditure of the Government. The Government was left with little money for developmental activities. That era was marked with shortages and high inflation. The budget used to be an opportunity for hoarders and speculators to go for the kill. Thanks to the process of reform and liberalization set in motion by Dr Manmohan Singh and provided momentum by the present Finance Minister, the Union Budget is now awaited with an air of expectancy. The reason is that the Union Budget is no longer mere presentation of various financial statements of the Government and an exercise to increase taxes. The Union Budget has, since, acquired somewhat a shade of policy document of the Government on various aspects of economy, which also sets the agenda for future. No wonder then, there is a lot of expectation within the auto sector from the Union Budget 2007. The advance estimates of Indian economy for the year 20076-07 released by the CSO has sent economists, industry, trade and common people into tizzy. There is a palpable excitement all around about India's growth story. In the second year running, India is expected to clock GDP growth of over 9 percent. What is remarkable is that the manufacturing sector is on a roll and, together with service sector, is leading the surge in economy. When the quick estimates of GDP for the year 2005-06 pitched the growth at 9.1%, many experts felt that it would not be possible to achieve a growth of 9%+ in the year 2006-07 on a higher base. In this backdrop, the performance of economy is, indeed, laudable. It gives a confidence that the targeted 10% growth in future is not unrealistic. There is no gainsaying that automobile sector, within the manufacturing sector, is one of the key drivers of economy. It, therefore, comes as no surprise that AMP aims to doubling the contribution of auto sector in the economy from the current 5% to 10% by 2016. We feel that this target is achievable if a right mix of policies is in place. There are a number of irritants that need to be removed to pave the way for faster growth of auto sector. With buoyancy in economy and tax collections, it becomes easier for the Hon'ble Finance Minister to come up with the bold measures in the Budget to provide further boost to the auto sector. The importance of auto sector in national economy in terms of its contribution to the central and state exchequers, employment generation and its spin-off on other sectors of economy because of its far-reaching forward and backward linkages, needs no reiteration. The automobile retail trade and service industry, which FADA represents, provides direct employment to about 5 lakh people and has invested over Rs. 22,000 crores, over and above Rs. 18,000 invested by the auto retailing in the unorganized sector. This segment is an important link in value chain and, therefore, ought to be given the recognition and attention it deserves. There are host of issues bugging this segment of automotive business. One of the major issues of concern is that there is no provision for automobile dealerships in the land & urban planning of cities. Retail automobile trade cannot and should not be bracketed with any other commercial or industrial activity. It requires large space for storage of vehicles & parts, PDI, service station for repair & servicing, and showrooms & open space for display of wide range of vehicles & accessories, demo vehicles, customer lounge and office, The operation is also quite complex starting with receipt of vehicles from manufacturers, washing and technical checks, PDI after selection by the customer and before delivery, and after-sale servicing & repair throughout the life of a vehicle. Therefore, there is no need to make provision for automobile dealerships with 3-S facility as a composite activity under one roof in the land & urban planning of cities. There is also a requirement of stockyards on the periphery of cities for storage of vehicles, oil, accessories and parts received from manufacturers and other vendors. In fact, auto zones or clusters should be created in different parts of the cities and towns for the automobile dealerships. Today, virtually, every working person in cities owns a vehicle. Automobile repair & service is, therefore, essentially a utility that should be located in the neighbourhood of commercial centres and residential areas. Coming to our expectation from the Union Budget 2007, we hope that excise duty on passenger cars will be rationalized at 16% uniformly irrespective of the size and engine capacity of vehicles. Similarly, we, in FADA, strongly feel that the depreciation rate for passenger cars should be increased to 331/3% to be in tune with the market realities, which show that the product life cycle is shortening. We would also expect incentives for fleet renewal of commercial vehicles in the interest of clean environment and road safety. FBT is an area where a lot of confusion abounds. For example, the maintenance of demo cars, on-road service cars, etc. by dealerships and petrol filled in the vehicles at the time of delivery to the customers are an integral part of the automobile dealership business operations and expenditure on account thereof is a genuine business expense that should not attract FBT. There are host of other issues relating to service tax, sales tax/VAT on warranty parts, variation in registration procedures & road tax from state to state, hasslesome interstate movement of goods and passengers and the like, which may not entirely fall within the purview of the Union Budget but need to be addressed by the Central & State Governments for the faster growth of automobile industry. Regarding the activities of FAOA since my last message, I, along with some of my colleagues in the Council had an opportunity of attending the SIAM Conclave on prospects & challenges for two-wheeler, three-wheeler and CV segments, held recently at New Delhi. It is heartening to note that experts representing various stakeholders including the Government, industry & trade, management consultancy firms and think tanks were bullish about the prospects of Indian automobile industry. The august gathering at the Conclave also sounded a note of caution. on the pace of road infrastructure development, state of STUs, fragmented road transport industry, land planning & development norms in cities, traffic congestion on roads, environmental & safety concerns, etc., that are capable of derailing the growth momentum. FADA had set out to launch training courses at two more places, namely, Mumbai and Kolkata for training Sales Executives, Service Supervisors and Spare Parts Supervisors to meet the trained manpower requirements of automobile dealerships. There has been some delay in launching courses at these two places for some reason or the other. The training courses at Kolkata and Mumbai are now set to commence in March 2007. I am happy to inform that FADA and Motor Industries Association, Kolkata are jointly organising a Regional Auto Convention on 15th March 2007 at Hotel Taj Bengal, Kolkata. The Regional Convention is likely to be inaugurated by the Chief Minister of West Bengal. Mr Ravi Kant, MO, Tata Motors has kindly agreed to be the Chief Guest. I seek the participation of automobile dealers from across the country in large numbers. The detailed programme is published elsewhere in this issue. Look forward to your participation at the Regional Convention in Kolkata and to your inputs and suggestions. With best wishes, Binod Agarwal