Captains of industry urge GST cut and a scrappage policy to revive auto sales

The Indian automobile industry is seeing a downturn like never before. June 2018 sales numbers across vehicle segments indicate a month-on-month decline for most OEMs and without any growth catalyst, it would take a while before sales return to positive territory. No wonder then that worried captains of industry are calling for a governmental push to bring back sales momentum into the market.

The latest to do that is Diego Graffi, MD and CEO Piaggio Vehicles, which manufactures two- and three-wheelers from its plant in Baramati, Maharashtra. According to the Piaggio boss, "The automobile industry needs support from the government in this year’s Union Budget as the auto sector is facing one of its most challenging periods in the last few years. Auto sales are at an 18-year low and the slowdown in the automobile industry is affecting the overall GDP growth story as it contributes over 7 percent to the total GDP. We expect that this Union Budget should provide much-needed relief to the sector with initiatives and policy interventions which can revive the sector." 

"I feel GST on automobiles should be reduced from 28 percent to a more rational level of 18 percent as this will absorb some of the cost impact of the future introduction of BS VI, add to affordability for the customer, and be an impetus to growth."

"A comprehensive policy on the scrapping of old vehicles will not only benefit emission aspects but will in addition help the auto sector and consumers with new-technology vehicles. As far as electric vehicles are concerned, we are looking forward to a comprehensive policy on the phased introduction of EVs in India."

"The auto industry in general has been a great source of opportunities for investments and direct and indirect employment. Currently, this industry needs the appropriate support of the government to ensure it comes back to the growth trajectory and continues its contribution to the GDP and the India growth story. I feel the government recognises the potential of the auto industry and it will put its best foot forward,” concluded Graffi.

Kenichi Ayukawa: "Some GST relaxation will go a long way in bringing sales back on track. We also request fast tracking of a  scrappage policy to achieve full benefits of BS VI adoption."

Maruti Suzuki's Kenichi Ayukawa moots industry growth drivers
Graffi's call to revive sales on these lines is similar to what Kenichi Ayukawa, MD and CEO, Maruti Suzuki India, said at Autocar Professional's BS VI Conclave in New Delhi on June 18.

“Over 7.1 percent of India’s GDP comes from the automobile sector, which is among the biggest wealth and employment generators for the economy contributing an estimated roughly 37 million jobs. FY2019 was not so good for industry. There is considerable contraction in demand and slowdown conditions continue to prevail. We seek some positive incentives from the government to help revive consumer sentiment. We have to fight the slowdown together and bring back the industry into the green zone. Some GST relaxation will go a long way in bringing sales back on track.”

Ayukawa also urged the fast-tracking of a vehicle scrappage policy, which can get vehicles which do not comply with current emission and safety standards, off the roads. “Sadly, we offset all that we gain with BS VI with older vehicles plying on the roads. Old vehicles including buses, trucks, cars, two-wheelers and three-wheelers need to be systematically taken off the road. A proper time-bound scrappage policy is long due from the government. We request fast tracking of a  scrappage policy to achieve full benefits of BS VI adoption."

The BS VI Conclave saw FADA past president John K Paul issue the same call to reduce GST to kick-start growth in the Indian auto industry.

M&M's Anand Mahindra tweets to lower GST
In a response to the tweet on John K Paul, Anand Mahindra, chairman of the Mahindra Group, on June 26, too has urged reduction of GST: "What we’re all searching for is the ‘Mt. Mandara’ which can start the ‘Manthan’ of the economy & get it spinning faster. I’m biased, of course,but the auto industry is one such ‘Mandara.’ It has a huge multiplier effect on small companies & on employment. Lowering GST would help."

Martin Schwenk: "We recommend a downward revision of GST rate on all cars to 18 percent from 28 percent, and a proportionate reduction of cess to around 15 percent for all cars above 4 metres. This will act as a much-needed catalyst for growth of the industry."

Luxury carmakers too have called for a reduction of GST. Martin Schwenk, MD and CEO, Mercedes-Benz India, said: “Given the favourable outcome of GST in terms of rising revenue, we wish the government would reconsider the rationalisation of GST rates for cars which currently attracts 28 percent GST and 17-22 percent compensation cess. We recommend a downward revision of GST rate on all cars to 18 percent from 28 percent, and a proportionate reduction of cess to around 15 percent for all cars above 4 metres. This will act as a much-needed catalyst for growth of the industry, especially when it is facing subdued customer interest due to multiple factors like rise in insurance costs, inflationary hikes, liquidity crunch and forthcoming price increase due to BS VI implementation. To revive the slowing down auto sector, we also recommend to consider offering ‘depreciation’ benefit on vehicles to individuals.”