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Govt Measures Fail To Accelerate Auto Stocks

Auto shares were mixed as the government did not provide GST relief to the auto industry.

The S&P BSE Auto index was down 0.25% at 15,689.26. It underperformed the Sensex, which was up 249.86% at 36,951.02.

Hero MotoCorp (down 2.2%), TVS Motor Company (down 1.3%), Bajaj Auto (down 1.04%), Tata Motors (down 0.94%) and Eicher Motors (down 0.2%) declined.

Escorts (up 4.06%), Ashok Leyland (up 2.9%), Mahindra & Mahindra (up 1.11%) and Maruti Suzuki India (up 0.14%) advanced.

Finance Minister Nirmala Sitharaman on Friday, 23 August 2019, announced multiple initiatives to help boost the beleaguered automobile sector. The announcement came at a time when auto sales are reeling due to the massive downturn.

However, there was no announcement on the Goods & Services Tax (GST) front. The auto sector was hopeful of a reduction in the GST rate from 28% to 18%, which could have revived the demand ahead of festive season.

Hero MotoCorp’s executive director, operations (plants) and Chief Technology Officer (CTO), Vikram Kasbekar, was quoted by the media as saying that two-wheelers, which are neither luxury nor ‘sin’ goods, require a reduction in the GST rate from 28% to 18%. This will help boost demand immediately leading to an even more positive impact, he added.

The finance minister indicated that she would meet the press twice over the coming weeks to address more issues. This has spurred hopes for additional measures for the auto sector, especially on GST rate cut.

Among its slew of measures for the auto sector on Friday, 23 August 2019, FM assured that BS IV vehicles purchased till 31 March 2020 will remain operational for entire period of registration.

Sitharaman went on to speak about the proposed increase in one-time vehicle registration fee, saying that the proposal has been pushed back to June 2020.

FM also approved higher depreciation for all vehicles. Sitharaman said that depreciation will be increased to 30% for all vehicles acquired during the period from now till 31 March 2020.

The FM also clarified that both electric vehicles (EVs) and internal combustion vehicles (ICVs) will continue to be registered. Government’s focus will be on setting up of infrastructure for development of ancillaries/components including batteries for export.

To boost demand, FM announced lifting the ban on purchase of new vehicles for replacing all old vehicles by departments. Government will also consider various measures including scrappage policy.

A scrappage policy is a government-funded programme to promote the replacement of old vehicles with modern ones. Last month, the Ministry of Road Transport and Highways proposed a draft policy that buyers would not have to pay a registration fee for their new vehicles if they provide valid scrapping issued by an “authorised scrapping agency”.

Indian automobile industry body SIAM (Society of Indian Automobile Manufacturers) President Rajan Wadhera said that the industry highly appreciates that the FM has responded with a package of measures within two weeks of its consultation with the industry.

Meanwhile, before the finance minister’s statement on Friday evening, Minister of Road Transport and Highways Nitin Gadkari reportedly stated that the government does not have any plans to ban petrol or diesel vehicles.