5 incentives that may help growth of auto sales

Auto sector stocks were in focus in morning trade on Monday after the government acknowledged the difficulties faced by the sector and announcement a slew of measures to revive growth. On Friday, the Union Finance Minister Nirmala Sitharaman put-forth a five-prong stimulus package to help increase vehicle sales.

Rollback of increase in registration fees:

The government deferred the enhancement of new vehicle registration fee until June 2020. In a proposed plan, the Ministry of Road Transport and Highways had notified a multi-fold increase in registration charge for internal combustion engine (ICE) vehicles. This plan aimed to incentivise the purchase of electric vehicle.

Relief in depreciation:

For any new vehicle purchase, government has allowed an extra 15 per cent depreciation which will be added to the existing 15 per cent, taking the total depreciation to 30 per cent, with immediate effect until end of March 2020. This will give substantial relief to high value passenger vehicle and commercial vehicle buyers.

Lifting on ban of new purchases:

Government had earlier imposed a ban on purchase of new vehicles by government departments. Also, government had a positive bias toward buying electric vehicles, which is now lifted.

Vehicle Scrapping:

FM on Friday indicated that the government in consultation with the auto industry is drafting a vehicle scrappage policy. Both are of the view that the buyer swapping his old vehicle for a new purchase should be given incentives, but who will give the incentives is the bone of contentions. Government wants the automakers to offer discount as they will be ultimate beneficiary of the exercise, while the industry wants the government to offer cash incentives and discount in form of a income tax waiver as vehicles that are older than 15 year cause pollution.

Development of infra and easing liquidity for auto components:

The finance minister on Friday announced that repo rate will be directly linked to retail, vehicle and housing loans. Thus any cut in repo rate will be passed on to the lender, making working capital cheaper. Also, the government will focus on setting up infrastructure for the development of automobile components such as batteries for export.

Reacting to these positive development, the Nifty Auto index displayed huge volatility on Monday. The index opened at 7,202.70 and was at the level of 6,971.70, down by 16.65 points or 0.24 per cent at 12:29 hours. The top contributors to the auto index's gains were Tata Motors, Maruti and Motherson Sumi. The 15 stock index had 7 advances against 8 declines.