Indian automobile companies on September 5 sought government intervention through a cut in goods and services tax to stem a deepening slump in vehicle sales, warning that any further delay will put a million jobs at risk.
“Till now, 15,000 contractual manufacturing jobs have been lost and another million are at risk if the slowdown is not reversed," news agency IANS cited Rajan Wadhera, president, Society of Indian Automobile Manufacturers (Siam), as saying at the group’s annual convention in New Delhi.
Companies claimed they have already done what they could at their end to deal with the year-long slowdown and that consumers are holding back purchases because of expectations of a cut in taxes. Passenger vehicle sales have slumped to their worst in nearly two decades in July, because of higher ownership costs, lack of vehicle financing, farm distress and a slowing economy.
Union minister for road transport and highways Nitin Gadkari assured automobile executives that the government will consider reducing taxes on hybrid vehicles to boost sales.
He also said that India doesn’t plan to ban vehicles that run on either petrol or diesel, assuaging concerns raised by automakers who have got mixed signals from the government on the road ahead for conventional fossil fuel vehicles amid a growing focus on cleaner electric mobility.
“Petrol and diesel vehicles will not be banned and the government also does not have any intent to ban anyone. These (hybrid) vehicles need to attract less tax now as our intention should be to increase sales as the sector needs help at the moment," Gadkari said at the Siam convention. “I have also suggested to the finance and commerce ministers if we can provide some incentives for exports as well."
Mahindra and Mahindra Ltd managing director Pawan Goenka said the company has deferred capital expenditure of Rs 800-1,000 crore since sales volumes have not risen.
“In 2008 and in 2013, demand went up from the day after excise duty was reduced. This time as well there will be instant impact on two, three and four-wheeler sales if there is a cut. The slowdown has come at the wrong time since we are about to shift to the Bharat VI emission norms. If we don’t get out of this slowdown before the transition then we (the industry) will be in trouble," said Goenka.
“If the industry does not turn back to positive growth for the remaining part of the months of fiscal year, we may see more layoffs," he added.
The slowdown in the automobile industry is a worry for the government since it contributes significantly to generating jobs and government revenues. Finance minister Nirmala Sitharaman said on Sunday that the government will take a proposal to reduce the goods and services tax rate on automobiles to the GST Council. Automobiles currently attract the highest tax rate of 28 percent, apart from a cess.
Gadkari’s announcement to lower GST on hybrid vehicles will be a boost to Japanese car makers such as Maruti Suzuki India Ltd, Honda Cars India Ltd and Toyota Kirloskar Motor Ltd who are investing in this technology as an interim solution before moving to electric vehicles.
Gadkari had in the 2017 conference of Siam warned auto firms that they must switch to making vehicles that run on non-polluting alternative fuels such as electricity or compressed natural gas or risk being overtaken by inevitable policy change.
Also, government think tank NITI Aayog on 21 June asked the auto industry to submit a plan on phasing out internal combustion engine-fitted two-wheelers under 150cc by 2025, and three-wheelers by 2023, along with shifting to electric mobility. Gadkari has since toned down his approach and recently said the government won’t set a deadline for companies to shift to EVs but would let market forces decide.
As vehicle sales over the last year nosedived, automobile companies have grown increasingly wary that speculation around a potential cut in indirect taxes has emerged as one more reason for customers to defer purchases in the festive season.
“Let us know whether GST can be reduced or not as one of the reasons for the empty showrooms is because people are thinking that things will change in the future. Otherwise we will miss out on the festive season," said Guenter Butschek, chief executive and managing director, Tata Motors Ltd. “The Indian automotive growth story is about to collapse."
Sales of two wheelers have been hit particularly hard as a result of a sharp decline in rural markets and a hike in insurance premiums.
TVS Motor Co. chairman Venu Srinivasan, describing the slowdown as the worst in 30 years, warned that the industry will not be able to absorb the BS-VI switchover disruption if the government fails to cut GST on vehicles.
“Prices of two-wheelers have increased by 35 percent of the last two years and then the statement of a possibility of being banned has not helped the industry either. BS-VI is a shock that we have to take and the society and the country will benefit from this. The government should soften the impact for the automobile industry with a cut in the GST," said Srinivasan.
The auto parts industry is also under pressure since orders have dried up, Gadkari said in his speech.
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