Budget 2021: Boost to auto sector from new vehicle scrappage policy

The automobile industry is trying to emerge from the setbacks due to the Covid pandemic.

NEW DELHI: Finance minister Nirmala Sitharaman on Monday announced a new voluntary vehicle scrapping policy in the Union Budget 2021-22, which is set to provide a major boost to the automobile sector reeling under the impact of the pandemic.

The auto sector has been urging the government to usher in such measures to combat the sharp slowdown in sales over the last few years. Under the new policy to phase out old vehicles, personal vehicles will undergo a fitness test in automated centers after 20 years while the commercial vehicles will undergo a test after 15 years. 

"We are separately announcing a voluntary vehicle scrapping policy to phase out old and unfit vehicles. This will help in encouraging fuel-efficient, environment-friendly vehicles, thereby, reducing vehicular pollution and oil import bills," the finance minister said while presenting her ‘tablet budget’ – the country’s first paperless budget.

The budget also proposes a marked increase in the capital expenditure and has thus provided Rs 5.54 lakh crores which is 34.5 per cent more than budget expenditure of 2020-21. This can give a significant impetus to the demand for heavy and medium commercial vehicles.

“For a five-trillion dollar economy, our manufacturing sector has to grow in double digits on a sustained basis. Our manufacturing companies need to become an integral part of global supply chains,” said Sitharaman in her speech.

It also includes a proposal for an increase in the permissible foreign direct investment (FDI) limit from the current 49 per cent to 74 per cent in insurance companies.

In other major decisions, the finance minister has announced the scrapping of income tax for senior citizens under certain conditions, new rules for removal of double taxation for NRIs, and a reduction in the time period of tax assessments among other measures.

Sitharaman pegged the fiscal deficit for FY21 at 9.5 per cent of the GDP, much lower than markets had feared, and aimed to keep it at 6.80 per cent in FY22 and bring it down below the 4 per cent mark by FY26. She also steered clear of mentioning any alterations in the personal tax slabs.

"India now has one of the lowest Covid2019 death rates of 112 per million populations and one of the lowest active cases of about 130 per million. This has laid down the foundation for the economic revival we see today,” she added.

Dalal Street has reacted favourably to the Union Budget 2021, with Sensex zooming over 2,000 points and Nifty crossing 14,150 points after the announcements.

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