Finance Minister Nirmala Sitharaman (File image: Reuters)
The two-wheeler industry’s hopes were dashed on August 27 when Finance Minister Nirmala Sitharaman made no announcement about a reduction in goods and services tax (GST).
Two-wheeler makers have pinned their hopes on a 10-percentage-point reduction in GST, from 28 percent to 18 percent, after Sitharaman said that a rate revision is required for the segment.
The reduction to 18 percent would translate to a fall of Rs 5,000 to Rs 12,000 in two-wheeler prices.
Neither luxury, nor sin
In a meeting organised by the Confederation of Indian Industry (CII) on August 25, the Finance Minister said “two-wheelers are neither a luxury nor a sin good and hence merit a rate revision”.
But that statement pushed up the anxiety levels of two-wheeler manufacturers and dealers. They fear customers would rather wait and benefit from the reduction in GST than commit to a purchase immediately.
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Sitharaman, however, pointed out the decision was not hers to make: “It is the entire prerogative of the GST Council to say they want to do it soon or they want to do it later or postpone it. I have only responded to a suggestion from one of the members of CII that because two-wheelers won’t come under the sin goods category they may merit going to the Council for consultation. Whether they wish it for sooner or later I cannot promise.”
Hero MotoCorp, Bajaj Auto and TVS Motor Company, which have been seeking a GST rate cut for the past 18 months, were left high and dry after the rates were left unchanged.
The development comes at a time when two-wheeler sales are witnessing a revival. The segment bounced back vigorously in July (sales were down only 15 percent YoY) with every company stating that current demand has reached pre-Covid levels. However, April-July period sales were 61 percent lower, at 2.57 million units, from 6.52 million units during the same period last year.
The industry fears the Minister’s remarks will arrest the momentum the segment is currently enjoying and have the opposite effect.
Speaking to CNBC TV18 on August 26, Rajiv Bajaj, Managing Director, Bajaj Auto, said: “What the FM said needs to be translated into a decision as soon as possible. Every customer looking to buy a two-wheeler is imagining 28 percent becoming 18 percent and therefore they will stop in their tracks. So, if this is not decided immediately it will have the opposite impact of the intended impact and dampen the season completely.”
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Responding to a query from Moneycontrol, Venu Srinivasan, Chairman and Managing Director, TVS Motor Company, said: “I had hoped that it would be cleared today. The FM is correct in saying that it (the decision) rests with the GST council. I still hope the council will consider the justifiable and fair request for reducing the tax on products (two-wheelers) used by common people for their daily essential needs.”
Stakeholders now fear that consumers will naturally be inclined to postpone their purchases in the hope of benefiting from a reduced GST rate.Vinkesh Gulati, President-elect of the Federation of Automobile Dealers Associations, said in a tweet: “In August 2019 there were similar intentions shown by the Finance Minister. In anticipation, all customers delayed their purchase, which resulted in de-growth [contraction] of 20 percent in passenger vehicles and 13 percent overall.”