Tax cuts will attract FDI in manufacturing, benefit auto industry: Icra

The automotive industry, which accounts for about half of the country's manufacturing GDP, is likely to be one of the key beneficiaries of corporate tax revision, rating agency Icra said on Monday.

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

"Given the increasing US-China trade tensions, revision in corporate tax will attract FDI in Indian manufacturing sector, as the revised tax structure is now in line with other emerging markets," Icra said.

Indian auto manufacturers have imported components worth $17.6 billion during 2019-20 (till now) and this is likely to increase further in 2020-21 given the transitionary phase towards stricter safety and emission norms.

In the current fiscal, the Indian automotive industry, especially the passenger vehicle segment, has witnessed one of the worst slides in the last two decades due to multiple factors like tighter financing environment for consumers and liquidity crunch faced by dealerships.

Besides, weak farm income and overall slowdown in economic activity has 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 GST/cess revision will help consumers who were waiting for improved clarity prior to their car purchase decision, he added.