Union Budget 2021: What’s in it for the auto sector?

The Finance Minister Nirmala Sitharaman presented the Union Budget on February 01, 2021. Auto manufacturers have reason to cheer after announcing a voluntary vehicle scrappage policy to phase out old vehicles. You may find commercial vehicles of 15 years or more and personal vehicles of 20 years or more phased out under the vehicle scrappage policy. It would boost demand for newer vehicles which do not pollute the environment. Let’s take a look at what Union Budget 2021 offers the auto sector in India. 

Union Budget 2021 announces voluntary vehicle scrappage policy

The Finance Minister has announced a voluntary vehicle scrappage policy to phase out unfit vehicles. It was a long-awaited scrappage policy which could boost the auto sector as old polluting vehicles are eliminated. You would find the demand for newer environment-friendly personal and commercial vehicles rising as auto manufacturers ramp up production. 

The voluntary vehicle scrappage scheme applies to personal vehicles of 20 years or more and commercial vehicles of 15 years and above. You would find vehicles having to undergo a fitness test at an automated fitness centre. 

It may encourage vehicle owners to replace old, unfit and polluting vehicles with newer environment-friendly vehicles as the scheme may offer monetary incentives. It could be road tax rebates on the purchase of a new vehicle. However, further details are awaited which could bring clarity on the voluntary vehicle scrappage policy. 

How the Union Budget 2021 could boost the auto sector in India?

The auto sector has witnessed a slowdown in sales since 2019. The voluntary vehicle scrappage policy could be a gamechanger which may boost the sale of automobiles in India. 

You may find many old commercial and personal vehicles polluting the environment. The voluntary vehicle scrappage policy could boost the demand for fuel-efficient vehicles that are environment-friendly. It could reduce India’s crude oil import bills and kickstart demand in the automobile sector. 

The Finance Minister Nirmala Sitharaman has announced a capital investment to the tune of Rs 5.54 trillion to develop infrastructure around the country. It could boost demand for commercial vehicles as owners replace older vehicles with newer models. You would find the material from older vehicles recycled which could reduce the cost of manufacturing buses, cars and trucks. It could make India a vehicle manufacturing hub and also reduce the prices of commercial and personal vehicles in India. 

The Finance Minister has incentivised the setting up of startups in India with a proposal to extend the tax holiday by one more year up to March 31, 2022. You would find many electric two-wheelers in India manufactured by electric vehicle startups. This move could boost the production of electric two-wheelers as petrol and diesel prices are on the rise. 

You may find rising fuel prices, weak consumer sentiment after the pandemic and higher prices of vehicles due to government safety regulations, leading to a decline in the sale of automobiles. The voluntary vehicle scrappage policy could boost demand in the auto sector and may promote the rise of electric vehicles in India. In a nutshell, the long-awaited vehicle scrappage policy and the focus on better road infrastructure will boost the automobile sector in India. 

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in

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