SIAM cuts growth forecast for PVs to 6-8% for FY17

For the second time in two months, auto industry body SIAM today revised downward the growth forecast for passenger vehicle sales at 6-8 percent for the new fiscal citing burden of high taxation and unfavourable environment around diesel vehicles.

Society of Indian Automobile Manufacturers (SIAM) had in March revised the growth forecast of passenger vehicles for the new fiscal to 11 percent from 12 percent after the imposition of infrastructure cess ranging between 1-4 percent in the Budget.

"Maybe the auto industry is not so confident of growing in low double digits," SIAM Deputy Director General Sugato Sen told reporters here.

He said experts and consultants were of the opinion that "this fiscal, the passenger vehicles growth will be 6-8 percent", which SIAM also subscribes to the view.

When asked about the reasons for the downward revision, he said factors such as high interest rates and higher cost of acquisition of vehicles by 1-2 percent after the additional taxes imposed in Budget is playing a role in weak consumer sentiments.

"Despite the RBI rate cuts, banks are yet to pass it at the retail level," Sen said.

In Budget 2016-17, Finance Minister Arun Jaitley had announced infrastructure cess of of 1 percent on petrol/ LPG/CNG driven vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,200cc.

Singling out diesel vehicles in the aftermath of pollution problems in the national capital, he also imposed 2.5 percent cess on diesel vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,500cc, while higher engine capacity and SUVs and bigger sedans were slapped a cess of 4 percent on the value of the car.

The minister also proposed "to collect tax at source at the rate of 1 percent on purchase of luxury cars exceeding value of Rs 10 lakh".

"Automobiles have become the highest taxed manufactured product (in India). Additional taxes in this Budget dampened sentiment further," Sen said, adding that investments on capacity expansion are getting impacted.

On the Supreme Court ban on diesel cars and SUVs with engines above 2,000cc, he said "court intervention is complicating matters (and is) stigmatising technologies." "Abrupt policy changes, such as ban on diesel vehicles of more than 2,000cc in Delhi, would impact sale of vehicles. The ban has been extended beyond March without any end date," Sen said.

He, however, said the 7th pay commission is expected to provide a boost to consumer spending which is expected to positively impact the passenger vehicle sales.

"This is also expected to propel the replacement of cars bought 5 years back during the 6th pay commission. We expect the impact of 7th pay commission to show in the second half of FY17," Sen said.

For the ongoing fiscal, Sen said motorcycle segment is expected to grow at 0-3 percent and scooters at 17-19 percent.