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Union Budget 2019: Auto Industry Looks For Succor From Govt

GST rate on all categories of vehicles should be brought down to 18% from current 28%

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It is a no-brainer that the Indian auto industry is going through its worst slowdown with continuous decline in sales from past 11 months.  Thanks to the ongoing liquidity crisis and other headwinds, the month of June also brought no respite to the industry  as almost all the major car manufacturers in the country, including Maruti Suzuki, Toyota, Tata Motors, Hyundai, Honda Motors, recorded a decline in sales owing to weak consumer sentiments. Both rural and urban regions are going through demand distress. 

The primary reason behind the low consumer sentiment is the surge in vehicle prices amidst new safety regulations, lingering impact of increased axle norms, delay in monsoon, liquidity constraints and muted performance of core sectors such as infrastructure and mining. These factors have dialed down demand in both urban and rural areas. This is irrespective of the fact that a stable government under the leadership of Narendra Modi was expected to perk up sentiments in the market and eventually revive the market. The situation is somewhat similar in the two-wheeler industry where leading players such as Hero MotoCorp, Honda Motorcycle and Scooter India (HMSI) and Royal Enfield are seeing a double digit drop.

N. Raja, Deputy Managing Director, Toyota Kirloskar Motor said, “The Industry has been witnessing a continuous decline in domestic sales owing to several factors that have contributed to the weak consumer sentiment. The prevailing economic uncertainty, uncertainty on monsoons, high interest costs, tight liquidity and also the underlying apprehensions surrounding BS VI introduction in few months have steered the slowdown. We hope that the government comes out with consumer-friendly measures that will bring back positive sentiments in the market. ”

Rajesh Goel, Senior Vice President and Director, Sales and Marketing, Honda Cars India Ltd said, “The auto industry is going through its worst slowdown with a continuous decline for many months. Going forward, any initiative which can jump start the demand will definitely be a positive for the industry.

Latest media reports also indicate that because of dearth in demand, dealership outlets of the automakers grappling with a huge inventory pile-up that ultimately compelled  a lot OEMs to shut down their plants for a minimum period of 7 days during May and June. 

FADA President Ashish Harsharaj Kale said in an official statement to the media, “Today the auto dealers have more than 25,000 outlets spread across the remotest corners of our country providing direct employment to 25 lakh people and another 25 lakh in indirect employment, without displacing them away from their homes and family and ensuring an inclusive social employment.”

Need for duty cuts and policy roadmap

Meanwhile, the Newly elected Government is now all set to present the union budget for this financial year. The automotive industry comprising all the players in the passenger car, commercial vehicle as well as two/three-wheeler manufacturers, which is reeling under slowdown, is seeking a reduction in the GST rate from 28% to 18% on  vehicles. 

“Our key recommendations for the Union Budget 2019-20 are as follows:

 1) GST rate on all categories of vehicles should be brought down to 18% from current 28%.

 2) A fleet modernization programme should be introduced to get the polluting, unsafe and old vehicles off the road.

 3) Corporate tax rate for all companies should be brought down to 25%, as was indicated by the Finance Minister in his speech.

 4) Weighted deduction for R&D activities should be reinstated at 200% till such time the corporate tax rates are reduced to 25%,” said Vishnu Mathur, Director General, in an official statement to the media. 

Manohar Bhat, Vice President and Head of Sales & Marketing, Kia Motors India, stated, "We are looking forward to the upcoming budget as the industry urgently needs a push amid the slowdown. As put forward by SIAM, we are hopeful of a reduction in GST from the government to counter the slowdown and elevate the sentiments of potential car buyers. Further, new policies and schemes with regards to electric mobility vision and new incentive-based scrappage policy of old vehicles will also act as a catalyst to restore the growth in the automobile industry."

Furthermore, the Automotive Component Manufacturers Association (ACMA), the apex body of the Indian auto component industry, in its recommendations to the Government for the forthcoming Budget, has stressed on the need to ensure a uniform GST rate of 18% on all auto components. It has also requested for an urgent need to increase the rate of weighted deduction on R&D spend.

Commenting on ACMA’s recommendations for the forthcoming budget, Vinnie Mehta, Director General, ACMA said, “The auto component industry, being an intermediary, has recommended for a uniform GST rate of 18% on all auto components. The industry has significant aftermarket operations, which is plagued by grey operations and counterfeits due to the high 28 per cent GST rate. A moderate rate of 18 per cent will not only address this challenge but will also enhance the tax base through better compliance”.

“As we know that entire auto industry is undergoing a major transition with implementation of BSVI and newer safety norms. That apart, the government is keen to usher in electric mobility. Enhancing spend on R&D and creating infrastructure for innovation are therefore need of the hour for the industry to stay relevant. Facilitating new product development through a technology development and acquisition fund, as also enhancing the rate of weighted deduction on R&D spend will be steps in the right direction by the government,” added Mehta.

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