According to reports, the number of taxpayers in India was 84.4 million as of March 31, 2018. Of this, only 3.4 million were in the highest tax bracket of 30 per cent.
“The negative signalling effect, to quote jargon beloved by G7 central bankers, is certainly far worse than any additional revenue that might be generated,” Wood says.
The government decided to cut goods and services tax (GST) on electric vehicles (EVs) from 12 per cent to 5 per cent, and on EV chargers from 18 per cent to 5 per cent. Also, there is a proposal to hike registration fee for new vehicles besides a proposal to scrap old vehicles. The proposals, Wood says, are another dent for the auto sector, which is still grappling with falling sales since the past few months.
Besides Wood, analysts at Nomura have also flagged concerns regarding this and expect the two-wheeler segment to be impacted most as a result. Kapil Singh and Siddhartha Bera of Nomura, for instance, peg the overall cost to buy two-wheelers to rise by 2.5 per cent and around 1 per cent for cars.
“The increase in registration fees for new vehicles will further hurt sales of new vehicles. This will delay the recovery of the auto sector further, given that the demand environment is quite weak. OEM margins may also come under pressure, as they may need to give more incentives. The government’s intent to favour EVs over internal combustion engine (ICE) vehicles is clear. There may be further actions in the future to support EVs,” they wrote in a recent report.
Thus far in calendar year 2019 (CY19), the Nifty Auto index has underperformed the markets
by falling around 26 per cent as compared to a flattish Nifty50. All stocks that comprise the Nifty Auto have lost ground during this period, with Bajaj Auto and Hero MotoCorp sliding 7 per cent and 24 per cent respectively. TVS Motor, Maruti Suzuki, Ashok Leyland, Mahindra & Mahindra (M&M) and Tata Motors, too, have lost 25 – 38 per cent in this period.
“The two-wheeler industry faces a tougher challenge than the passenger vehicle segment as they are not only battling the slowdown, but also have a tough competition from the EV segment. While the EV push is a noble gesture, the timing is not right. The measures will further dent the auto segment,” says G Chokkalingam, founder and managing director at Equinomics Research.