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FM rolls out package to boost auto sector, liquidity situation; scrappage policy to come soon

In another major boost to the sector, the Finance Minister has also announced “a vehicle scrappage policy will be coming soon”

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Nirmala Sitharaman, Scraape, Automotive sales, GST, Ram Venkataramani, ACMA, BS IV, Fossil fuel, ICE, Internal Combustion Engine

Union Finance Minister Nirmala Sitharaman announced a number of healing measures for the plaguing the automotive industry which included enhancing liquidity situation and clarity on BS IV registration.

Among the top of the announcements, the FM informed that the proposed hike in registration of vehicle has been postponed till June 2020. Another measure announced was to release the pending GST within 30 days. It will serve as major booster to the automobile dealers who have been suffering the most.

As per Finance Minister announcement, till March 31 2020, any type of vehicle purchased is eligible for 15% depreciation over and above the existing 15%.

Brushing aside that speculation of the conventional engines wipe out she further said that both electric vehicles and internal combustion engine vehicles will continue to be registered. "The government focus will be in setting up infrastructure for the auto ancillary and components including batteries for export. But both EVs and ICE will continue to be registered," Sitharaman added.

"Since we need to create a necessary infrastructure for dealing with scrapped vehicles, we shall hopefully come up with a scrappage policy sooner so that road unworthy vehicles can all be sent to be scrapped and the money from those vehicles to be obtained in form of coupons with which the new vehicles can be bought," she added.

Apex body of auto components, ACMA president Ram Venkataramani said, “The announcements made by Finance Minister are assuring. We do hope that measures to improve liquidity and deferring of enhanced vehicle registration cost will revive the ailing sales in the auto sector. That apart, enhanced depreciation of 30% until March 2020 will motivate institutional sales of vehicles. Further, removal of ban on purchase of new vehicles by government will also help reduce the current pileup of inventory. It is also heartening to note that the government would be announcing a scrappage policy in due course. This will not only create replacement demand but will also have a benign impact on the environment and reduce import of fossil fuels."

On the liquidity front, FM announced that the repo rate will be directly linked to retail, housing, and vehicle loans. So any reduction in repo rate will be directly passed on to the lender. This will make working capital cheaper. Furthermore, banks will also launch products linked to repo rate.

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