The Future of Indian Automobile Sector: Is There a Need to Worry?
August 2019 witnessed one of the darkest days for the automobile sector, which is reeling under immense pressure with its sales falling month after month. The government had announced several measures to uplift the downturn in the automobile sector in August 2019. Society of Indian Automobile Manufacturers (SIAM) welcomed the government’s decision to reduce the GST rate on electric vehicles from the present 12% to 5%.
To be effective from August 1, the GST council had also announced that tax on EV chargers will be reduced from 18% to 5%. The local authorities have also been given GST exemption for the hiring of electric buses by local authorities. Mr Wadhera also said, “Over the years, this will help popularise electric vehicles and increase penetration in the country.” He also mentioned that the automotive industry is currently going through a difficult time and SIAM has requested government intervention to stimulate demand so that the industry can turn around from the current difficulties.
Mr Rajan Wadhera, President, SIAM said, “Government’s vision of increasing electric mobility in the country has been acknowledged by GST council by significantly reducing GST rate on electric vehicles. We are thankful to the GST council for accepting these recommendations which were proposed by SIAM in our white paper which was released last year to promote the growth of electric vehicles in India.”
According to informed sources companies for the month of August 2019 has been very dismal with over 30% erosion of sales for Passenger Vehicles. The Commercial Vehicle and Two Wheeler Sales are also significantly negative indicating that the market has still not responded to the various measures initiated by the Hon’ble Finance Minister. The series of announcements on credit availability and reducing the cost of credit that were made do not seem to have percolated down to the NBFCs which support the bulk of finance for the automotive industry. The consumer sentiment also continues to be low and there is clearly a trust deficit in lending money to the dealers.
Dr Niranjan Hiranandani – Founder & MD Hiranandani Group said, “Anything that impacts the economy has a corresponding effect on industry; the automobile sector has been facing a slew of problems and challenges over the past few months – and these have impacted jobs and in effect, the first casualty for other industries – including real estate – is buyer sentiment. Buying a home for someone working in the automobile industry, in a scenario where Pink Slips are being handed out, is not the easiest of things to do, and yes, home buying by this segment of home buyers has been affected. Secondly, with dealerships being affected, commercial space offtake, logically speaking, also gets impacted. With the Indian Government coming up with positive moves, including stimulus plans, hopefully, things will get better and this segment of home buyers will get back to ‘positive sentiments’ when it comes to buying homes. With no immediate signs of recovery, the Federation of Automobile Dealers Associations (FADA) feared that the job cuts may continue with more showrooms being shut in the near future and sought immediate government intervention such as reduction of GST to provide relief to the auto industry.
All this while, the automobile industry has pulled out all stops in offering attractive deals and discounts to the consumers. However, the ability of the industry to provide large discounts is limited and this only highlights the need for the Government to consider reducing the GST rates from 28% to 18%. This move will significantly reduce the cost of vehicles and in turn create demand. There is also an urgent need to come out with an integrated Incentive-based Scrappage policy covering all segments of the Auto Industry as promised by the Hon’ble Finance Minister.
As the festival season is around the corner, it is imperative that these decisions are taken quickly and announced immediately so that the industry could hope for a better festival season that could harbinger a recovery in the industry, emphasised Mr Rajan Wadhera, President, SIAM. The government had announced several measures to check the downturn in the automobile sector in August 2019. Now, the BS4 vehicles purchased till March 31, 2020, will remain in operation for the entire period of registration. The implementation of the one-time registration fee has been deferred until June 2020. The vehicles acquired till March 31, 2020, will have 30 per cent depreciation. The ban on the purchase of new vehicles by the various government departments has been removed. In addition, the government will consider a scrappage policy.
Auto Industry -Updates
The industry produced a total 9,724,373 vehicles including Passenger Vehicles, Commercial Vehicles, Three Wheelers, Two Wheelers and Quadricycle in April-July 2019 as against 10,883,730 in April-July 2018, registering a de-growth (-) 10.65 per cent over the same period last year.
The domestic sale of passenger vehicles declined by (-) 21.56 per cent in April-July 2019 over the same period last year. Within the Passenger Vehicles, the sales for Passenger Cars, Utility Vehicle & Vans declined by (-) 26.45 per cent, (-) 7.22 per cent and (-) 30.97 per cent respectively in April-July 2019 over the same period last year.
The overall commercial vehicles segment registered a decline of (-) 13.57 per cent in April-July 2019 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) declined by (-) 21.63 per cent and Light Commercial Vehicles declined by (-) 8.56 per cent in April-July 2019 over the same period last year. Three Wheelers sales declined by (-) 7.43 per cent in April-July 2019 over the same period last year. Within the Three Wheelers, Passenger Carrier sales registered de-growth of (-) 8.02 per cent and Goods Carrier declined by (-) 4.82 per cent in April-July 2019 over April-July 2018.
Two Wheelers sales registered a de-growth of (-) 12.93 per cent in April-July 2019 over April-July 2018. Within the Two Wheelers segment, Scooters, Motorcycles and Mopeds declined by (-) 15.58 per cent, (-) 11.18 per cent and (-) 20.17 per cent respectively in April-July 2019 over April-July 2018.
In April-July 2019, overall automobile exports grew by 1.17 per cent where Passenger Vehicles and Two Wheelers exports grew by 1.34 per cent and 4.83 per cent respectively. However, Commercial Vehicles and Three Wheelers registered a de-growth of (-) 47.30 per cent, and (-) 12.80 per cent respectively in April-July 2019 over the same period last year.
Statistical Data according to SIAM.
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