Budget should incentivise local sourcing of steel from auto industry

30 January 2017

The Indian automotive industry and the government have put together the Automotive Mission Plan 2016-26 (AMP 2026) on a vision for the vehicles, auto components and tractor industries and where they should reach over the next ten years in line with India’s economic development. The AMP addresses the ecosystem required for the sector’s development in a sustainable way and be competitive in the global stage. It also seeks to define the path until 2026 keeping different stakeholders in mind.

With the government’s supportive policies (100 percent FDI in the automotive sector) both national and international automotive manufacturers are expanding their footprint in India. During the last decade the automotive industry has grown at a CAGR of 9.4 percent from 2006 to 2016, creating 25 million jobs, and propelled India to the 3rd largest automotive market. The next 10 years, the plan is to continue this momentum and create 65 million jobs have a comprehensive impact on skills, manufacturing and economic growth. More than 35 auto OEMs have established their footprint in India.

The auto sector’s growth presents an excellent opportunity for us to develop a comprehensive manufacturing sector covering technology assimilation, bring in modern manufacturing practices into the Indian shop floor and as a result of that improving and pushing the technical skills of our work force, thus fulfilling the objectives set under the ‘Skills India” initiative.

The challenges at this stage are many: providing sufficiently skilled personnel to the sectors’ growing needs, an educational system that can provide a pipeline of talent to the sector’s increasing needs, encouraging the localisation of components that will push the component makers to improve their quality and capacity utilisation and service levels.

These skills learnt through the auto sector’s growth will also rub off on improving the competitiveness of other sectors and has a multiplier effect on a variety of other industries such as electronics, automation, materials to name a few.

If ‘economic growth driven by Make in India’ is the objective, then the budget should focus on addressing on how best to help the supply chain and the auto component and auto sector, so that the multiplier effect of the supply chain can be maximised.

Activities that often requires significant R&D spend and development expenses by suppliers can be encouraged via tax breaks.

With a view to support local content and to improve competitiveness of the automotive supply chain, we hope the budget provides strong incentives to increasing local sourcing of steel (vis-a-vis imports). Although there have been anti-dumping measures taken to protect the Indian steel industry again unfair competition, alloy steel makers are still exposed to such unfair dumping.

Budget should reduce excise duties for auto components and for steel makers supplying into this sector. Steps should be taken to stimulate exports by increasing export benefits for both auto components and automotive. It should provide tax incentives for supporting innovation and R&D for steel & component makers as well as for skill development in such areas. It can facilitate auto financing to improve the sales and make it affordable for the consumer. Provide tax breaks for auto makers who are increasing their local content (ie sourcing their raw materials from Indian manufacturers) and include auto & auto components under focus product scheme.

Given the long gestation periods to develop new components and new products and the highly capital intensive nature of the industry, alloy steel makers and auto component makers, should enjoy lower Minimum Alternate Tax (MAT) and higher depreciation rates on capital goods.

Budget should incentivise investments into electric vehicles and development of alternate fuels, speed up physical infrastructure like roads to facilitate growth and accelerate the special steel fund for supporting distressed assets in this sector. It should relook at the railway freight for iron ore, coal, coke and steel products and bring them in to special category to make logistics costs affordable.
Source – BS