Corporate Tax Cut Set To Have Positive Impact On India’s Auto Sector, ICRA Says
An employee uses a robotic arm to fit a wheel onto a car at a manufacturing facility in Maharashtra, India. (Photographer: Udit Kulshrestha/Bloomberg)

Corporate Tax Cut Set To Have Positive Impact On India’s Auto Sector, ICRA Says

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India’s auto industry, which is in the midst of its worst slowdown in over two decades, is likely to be one of the key beneficiaries of the corporate tax cut announced by the government on Friday, ratings agency ICRA Ltd. said Monday.

The reduction of corporate tax rates to globally competitive levels will incentivise original equipment manufacturers and their vendors to increase localisation, which augurs well for the auto industry, ICRA said in a statement.

"Given the increasing U.S.-China trade tensions, revision in corporate tax will attract FDI [foreign direct investment] in Indian manufacturing sector, as the revised tax structure is now in line with other emerging markets," ICRA said.

Indian auto firms have imported components worth $17.6 billion in 2019-20 so far, and the figure is likely to increase further in 2020-21, given the shift to stricter safety and emission norms from Apr. 1, 2020.

India is in the midst of its worst auto slowdown in over two decades, as sales have slumped for 10 months in a row. An agrarian crisis and general slowdown in India has also impacted consumer sentiments and purchasing behaviour.

"Under the current weak demand conditions, OEMs are expected to pass on some benefits of tax revision to the end consumers. This implies that the price correction in coming months will to an extent address the demand-side issues," ICRA Vice President and Sector Head Pavethra Ponniah said.

Moreover, clarity from the government that there is no further goods and services tax/cess revision will help consumers who were waiting for improved clarity prior to their car purchase decision, he added.

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