Automobile Components

OUTLINE

  • Size of the Indian Auto Component Industry is around USD 39 billion and it registered a Compound Annual Growth Rate(CAGR) of 14% during 2006-16. During the same period exports increased from USD 3.2 billion to USD 10.81 billion
  • Surpassed Automotive Mission Plan (AMP) 2016-26 turnover target of USD 31.84 billion in FY 2016 by registering USD 39 billion
  • Aims to achieve 5 times growth with a turnover of USD 200 billion, export targets between USD 70-80 billion and an investment of USD 30-40 billion by 2026
  • Achieve aftermarket sector growth at CAGR of 12% annually
  • To be recognized as an emerging global hub for sourcing auto components
  • Geographically closer to key automotive markets like the ASEAN, Japan, Korea, Europe and other huge domestic market
  • Establish favorable trade policy with no restrictions on import-export

FDI POLICY

  • 100% Foreign Direct Investment (FDI) is allowed under the automatic route in the auto components sector, subject to all the applicable regulations and laws.

SECTOR POLICY

Auto Policy 2002:

  • Automatic approval for 100% foreign equity investment in auto components manufacturing facilities
  • Manufacturing and imports in this sector are exempt from licensing and approvals

Automotive Mission Plan 2016-26:

  • Indian automotive industry to grow 3.5 to 4 times of the current value of USD 74 billion to USD 260 billion to 302 billion by the end of FY 2026
  • India to be amongst the top three automotive industries in the world by 2026
  • Generate 65 million direct and indirect jobs by 2026
  • Contribute 12% of India’s GDP by 2026

National Automotive Testing and R&D Infrastructure Project (NATRiP):

  • A total of USD 388.5 million to enable the industry to adopt and implement global performance standards
  • Focus on providing low-cost manufacturing and product development solutions

Department of Heavy Industries & Public Enterprises:

  • USD 200 million fund to modernise the auto components industry by providing an interest subsidy on loans, and investments in new plants and equipment
  • Provide export benefits to intermediate suppliers of auto components against the Duty Free Replenishment Certificate (DFRC)

National Electric Mobility Mission Plan 2020 (NEMMP):

  • The National Mission for Electric Mobility 2020 was launched on 9 January, 2013 to accelerate adoption of electrical vehicles (including hybrid vehicles), and their manufacturing in India to encourage reliable, affordable and efficient electric vehicles that meet consumer performance and price expectations. This is to achieved through government-industry collaboration for promotion and development of indigenous manufacturing capabailities, along with required infrastructure, consumer awareness and technology. Thereby helping India emerge as a leader in the two-wheeler and four-wheeler electric vehicles market in the world by 2020, with total anticipated sales of around 6-7 million units
  • It is estimated that there will be excellent demand in India for low-cost xEVs that are suited for safe, short-distance urban commute (average 50-100 km/trip), and are rugged enough to perform reliably through the most hot climatic conditions that also see torrential monsoon rains for 3-4 months of the year

Pilot Projects of Electric Vehicle:

  • Department of Heavy Industry (DHI) is launching pilot projects on electric vehicles in Delhi and many other cities with a dual purpose of demonstrating and educating the people about the benefits of adopting clean and green modes of transportation
  • It will provide the viability gap funding through subvention to support the extra cost of acquisition and operation of these vehicles, by state governments or designated bodies. In the first phase, a pilot project to provide last mile connectivity to Delhi Metro through electric passenger vehicles has been approved

Faster Adoption & Manufacturing of Electric Hybrid Vehicles (FAME) Scheme

  • The overall scheme is proposed to be implemented over the next six years, i.e., till 2020
  • It also seeks to provide demand incentives to electric and hybrid vehicles from two-wheelers to buses
  • It will cover all vehicle segments, i.e., two-, three- and four-wheelers, cars, LCVs, buses, etc., and all forms of hybrid (Mild/Strong/Plug-in) and pure electric vehicles

FINANCIAL SUPPORT

Key Provisions of the 2016-2017 Union Budget:

  • Time limit of March 31, 2016 for excise duty of 6% on specified parts of Electric Vehicles and Hybrid Vehicles removed
  • Excise duty on engine for xEV (hybrid electric vehicle) reduced from 12.5% to 6%
  • Time limit of March 31, 2016 on duty exemption for specified parts of electric and hybrid vehicles has been removed
  • Basic customs duty on aluminium oxide for use in the manufacture of Wash Coat, used in the manufacture of catalytic converters reduced from 7.5% to 5%
  • Countervailing Duty of 6% introduced on engines for xEVs (hybrid electric vehicle) to maintain parity with excise duty rates
  • Higher allocation to improve road infrastructure which will push the demand for automobiles and components:
    1. Allocation of USD 8.46 billion with additional USD 2.3 billion to be raised by NHAI through bonds
    2. Allocation under Pradhan Mantri Gram Sadak Yojana increased to USD 2.92 billion; plan to connect remaining 65,000 eligible habitations by 2019
    3. Total investment in the road sector, including PMGSY allocation, would be USD 14.92 billion
  • Amendments to be made in Motor Vehicles Act to open up the road transport sector in the passenger segment

R&D Incentives for Industry and Private Sponsored Research:

  • A weighted tax deduction is given under section 35 (2AA) of the Income Tax Act
  • Weighted deduction of 200% is granted to assess for any sums paid to a national laboratory, university or institute of technology, or specified people with a specific direction and that the said sum is used for scientific research within a program approved by the prescribed authority

Manufacturers with an in-house R&D Centre:

  • Weighted tax deduction of 200% under Section 35 (2AB) of the Income Tax Act for both capital and revenue expenditure, incurred on scientific research and development. Expenditure on land and buildings is not eligible for deduction
  • 175% Weighted Deduction is also allowed on outsourced R&D from approved Institutions i.e National Laboratories, Universities, Scientific Research Institutes and IITs (Indian Institute of Technology)
  • Concessional excise duty of 6% extended for an indefinite period for manufacturers supplying batteries to producers of electrically operated vehicles
  • Exemption from basic customs duty on lithium-ion automotive batteries that are used in the manufacture of hybrid and electric vehicles

State Incentives:

  • Apart from the above, each state in India offers additional incentives for industrial projects.
  • Incentives are in areas like subsidised land cost, relaxation in stamp duty exemption on sale and lease of land, power tariff incentives, concessional rate of interest on loans, investment subsidies, tax incentives, backward areas subsidies and special incentive packages for mega projects.

Export Incentives:

  • Export promotion capital goods (EPGG) scheme
  • Duty remission scheme
  • Merchandise Exports from India Scheme (MEIS)

Areas based Incentives:

  • Incentives for units in Special Economic Zones (SEZs) / National Investment & Manufacturing Zones (NIMZs) as specified in respective Acts or setting up projects in special areas like the North-ast region, Jammu & Kashmir, Himachal Pradesh & Uttarakhand
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