Union Budget 2007: Industry Reactions Madhur Bajaj, President, SIAM & Vice Chairman, Bajaj Auto While the Finance Minister has presented a budget that seeks to continue the growth momentum in the economy, the auto industry had hoped for some more concrete steps in respect of the sector. The budget focuses on agriculture, infrastructure & social sector, all of which will have positive impact on the economy. The proposals for the agriculture sector, if implemented correctly, will lead to overall growth. The positive features of the budget in respect to the auto sector are: Reduction of CST from 4% to 3%; and the continuation of the weighted deduction of R&D expenditure for the automobile sector for the next 5 years. The retention of current customs duty structure for cars and two wheelers is a welcome step and will encourage local value addition in the domestic economy and generate employment. The other positives in the budget, namely, the increase in spending on roads both national highways and rural roads; higher outlay for the Urban Renewal Mission and its focus on transport, will help increase public transportation in the country. The upgradation of ITI's and the introduction of a PPP model would also have positive impact in the long term. However, reduction of customs duty on commercial vehicles from 12.5% to 10% is going to affect the industry negatively, specially as this applies to used commercial vehicles also. This would open up imports from low cost economies. The additional education cess of 1 % and the service tax on design services will have a negative impact on prices. Also, some companies are likely to be adversely affected by Dividend Distribution Tax. SIAM hopes that the high incidence of excise duty on cars and utility vehicles would be addressed. Moreover, UVs are the only means of transportation in semi-urban and rural areas where public transport network has not developed. Rajeev Chaba, President & MD, General Motors India The Budget is encouraging due to its focus on agriculture, irrigation, education and healthcare. Since it addresses some of the concerns of the industry in general, it should help fuel demand and economic growth. As for the Automobile Industry, it is not in line with the expectations of the sector. The industry expected a reduction in the excise duties on motor cars, removal of CST, elimination of surcharge, withdrawal of FBT, removal of cess, etc. amongst other concessions, which have not happened. On the other hand a reduction in the peak Custom Duty from 12.5% to 10% and reduction of 1% CST are welcome moves. The Government's intention to move towards the introduction of GST by 2010 is also a welcome decision. Some of the other announcements made by the Finance Minister like continuation of weighted deduction for R&D activities for a further period of five years and excise duty exemption for bio-diesel should stand Indian industry in good stead, going forward. The proposals, if implemented effectively, should have a positive impact on the industry and economy as a whole. The challenge now is the implementation of the proposals announced in the Budget. Arvind Mathew, President & MD, Ford India The Union Budget 2007-08 ignores the wish list of auto industry in particular and the manufacturing industry in general. However, we appreciate the balances to reflect the spirit of growth and momentum. Specific to the automobile industry, the excise duty rationalisation at 16% for all passenger car and utility vehicle segments was a long pending demand of the industry, and in my opinion, the Finance Minister could have taken a bold step to propel the industry into the next gear. On the positive side, a reduction of CST to 3% and bringing down peak custom duty rates to 10% would help improve India's global competitiveness. The auto industry faces a shortage of skilled labour and an increase in allocation of funds in the area of education and ITls is a welcome move. I hope the increased revenue through Education Cess, would be appropriately channelled towards upgrading remaining technical institutes and educational levels. Another welcome initiative is the excise duty exemption for bio-diesel. The extension of weighted deduction on R&D upto 2012 is also a positive move. Though the automobile sector has not taken the limelight in the budget this year, we hope the FM will correct this anomaly soon.