Finance Minister Nirmala Sitharaman devoted a substantial part of the first edition of her economy stimulus package to rev up the downcast automobile industry. The measures aimed to help the auto manufacturers ranged from lifting the ban on government department buying new vehicles, raising depreciation to 30 per cent and deferring registration fee hikes to next year. There was also an infusion of money into the finance sector, hopefully to spur consumption and demand.
Why is the beleaguered industry still not satisfied?
India's vehicle makers are labouring under the biggest sales decline in their history—car sales plummeted by almost 36 per cent in last month's data, and indications are that the new figures to be released this Monday are not any better. About three lakh have lost their jobs, including 3,000 at market leader Maruti Suzuki. If the decline is not arrested soon, there are fears that up to 10 lakh people may lose their jobs.
The panacea, according to the industry, is simple. Nothing short of a cut in GST, as well as a formalised scrappage policy by the government, will do.
While Transport minister Nitin Gadkari assured that a scrappage policy will be put in place 'soon' without giving any timeline, all hopes of the industry are now on the next GST council meeting, scheduled to be held in Goa on September 20.
“GST levied on a luxury vehicle as well as a moped is the same, at 28 per cent!,” said TVS chairman Venu Srinivasan. The industry's request has been for the government to cut the tax down to 18 per cent—if not permanently, at least on a temporary basis until business clambers out of the doldrums.
Auto industry believes that it has been unfairly hammered on multiple fronts . While the overall dip in economic sentiments and feelings of uncertainty may have seen customers reluctant to make big ticket purchases like buying cars or bikes, they feel the industry has been slammed by other recent measures as well, including the hike in insurance and registration costs and the crashing of the non-banking finance companies (NBFCs) which used to give easy loans to those looking to buy cars and bikes.
While the government has now promised to freeze the registration fee hikes till next year, other problems still remain. The court-mandated BS 6 emission norms which all auto makers have to comply to by April 1 next year has not only meant rise in technology research and manufacturing costs—it also means vehicles will get costlier in a few months time. “If we don't get out of (this) slowdown by BS 6, we will be in a deeper trouble,” said Pawan Goenka, managing director of Mahindra & Mahindra.
The industry's last hope for a positive change to the dismal scenario is a spike in sales in the upcoming festival months. While many car and bike companies, besides on the dealer level, are planning to cut their margins and offer discounts, the best bet for this would be a GST cut at the meeting on 20th, which would bring down the on-road cost substantially. “If we miss (getting a rate cut at the upcoming GST Council meeting), we are going to miss this festive season,” warned Guenter Butschek, CEO & managing director of Tata Motors.
Also on the wish-list is a formal scrappage policy from the government, a formalised method by which a deadline is set for vehicles to be junked, and an organised system for disposing off old vehicles. The industry argues this will help the environment by getting older, polluting vehicles off the streets, it also means customers will have to go for newer vehicles at an increased frequency.
“Scrappage (policy) is the biggest transformation...India needs to bring in. It's a crying need,” said Srinivasan. However, while the government seems to be in favour of such a move, it seems highly unlikely it will brought in as a regulation in the near future.