Automobile sector seeks lower GST to spur demand

With the automobile sector passing through its worst slowdown phase, the industry has been keenly awaiting the Budget to offer some relief to spur growth in the sector.

A liquidity crunch, pre-election uncertainty a few months back and high insurance costs have been among the main reasons for pushing the sector into a slowdown mode. Last month, almost all the major car manufacturers in the country including Maruti Suzuki, Toyota, Tata Motors, Hyundai, Honda Motors reported a decline in sales due to tepid demand.

In May, passenger vehicle (PV) sales crashed 20.5%, the highest decline in the last 18 years. Way back in September 2001, the vehicle sales had declined 21.91%.

In its Budget recommendations, the Society of Indian Automobile Manufacturers (Siam) has sought a reduction of GST on all vehicles to 18% from the current rate of 28%, besides asking a new fleet modernisation programme to get polluting, unsafe and old vehicles off the road. This would mean giving incentives on the vehicle scrappage to do away with old vehicles by buying new ones.

In September 2017, the cess on vehicles was increased to 17%, 20% and 22% from the earlier rate of 15% for mid-sized and large (luxury, SUVs and MUVs) passenger cars. This cess rate can be revised downward to provide the required push to the auto industry, CARE Ratings said in a note.

To promote 'Make in India' initiative and support local manufacturing, Siam has asked the ministry for an increase in applied customs duty on fully imported commercial vehicles (CV) to 40% from 25% and reduce the customs duty on semi-knocked down CVs to 20% from 25% for promoting local value addition.

One of the key reasons for a decline in sales in the PV segment has been a significant increase in the cost of ownership for passenger cars over the last two years. Another one has been the rising fuel cost in 2018, which has continued in the current year as well. Owing to higher raw material costs, OEMs also hiked vehicle prices in addition to the increase in insurance costs by Irdai, which had a compounding impact on the cost of ownership. All these resulted in around a 13% increase in the cost of ownership in the last two-year period, according to analysts estimates.

The government needs to consider some bold measures in this Budget to help get the industry back to growth trajectory without compromising on the much required safety and emissions standards. The auto industry is going through turbulent times and needs support, Federation of Automobile Dealers Association (FADA) president Ashish Kale said.

The government should bring down the GST and cess levied on the auto sector to create a positive consumer sentiment. It will also bring in affordability as there have been recent price hikes because of new safety and regulatory norms.

The new insurance premiums, coupled with the implementation of BS-VI will further increase the prices of vehicles by another 10-15%. A higher auto demand will also trigger a positive rippling effect on many other allied and related sectors and will augur well for the overall economy, Kale said.

FADA also reiterated the demand for an attractive incentive policy to encourage the scrappage of older vehicles which will revive the demand in the auto sector. A successful implementation of the voluntary policy will pave the way for a mandatory scrappage policy in the future. Also, there is a need to ease liquidity for NBFC's to further help the auto sector.