Corporate tax cut a positive for the automotive industry: ICRA

India`s automotive industry is likely to be one of the key beneficiaries of the recent corporate tax cut, credit ratings agency ICRA said on Monday. According to ICRA, the current reduction of corporate tax rates in India to globally competitive levels will incentivise OEMs and their vendors to increase localisation, which augurs well for the industry. In 2019-2020, India has imported auto components worth $17.6 billion.

"Under the current weak demand conditions, OEMs (original equipment manufacturers) are expected to pass on some of the benefits of tax revision to the end consumers," ICRA Vice President and Sector Head Pavethra Ponniah was quoted in a statement.

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"This implies that the price correction in coming months will to an extent address the demand side issues. Moreover, clarity from the government, that there is no further GST or cess revision, will help consumers who were waiting for improved clarity prior to their car purchase decision," she added.

ICRA also said that 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.

"In the current fiscal, the Indian automotive industry, especially the passenger vehicle segment, has witnessed one of the worst slides since the last two decades because of multiple factors," the ratings agency said in a statement.

"Tighter financing environment for consumers and the liquidity crunch faced by dealerships coupled with weak farm income and overall slowdown in economic activity has impacted consumer sentiments and purchasing behaviour," the statement added.