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Cut GST on automobiles to spur demand, says Rajan Wadhera, President, SIAM

Rajan Wadhera says the industry’s ability to provide large discounts is limited and that it has already pulled out all stops in offering attractive deals to consumers.

, ET Bureau|
Sep 05, 2019, 07.10 AM IST
Rajan Wadhera, president at Society of Indian Automobile Manufacturers
The government should cut the GST rate on automobiles to help spur demand ahead of the upcoming festive season, says Rajan Wadhera, president at Society of Indian Automobile Manufacturers (Siam). Wadhera says the industry’s ability to provide large discounts is limited and that it has already pulled out all stops in offering attractive deals to consumers. Edited excerpts of an interview with ET’s Sharmistha Mukherjee:

How effective will the govt’s stimulus package be in reviving demand in the auto sector?
The measures announced by the FM will go a long way to turn the industry towards a growth path. The sales report coming out from various companies for August has been dismal with over 30% erosion for passenger vehicles. Commercial vehicle and two-wheeler sales are also significantly negative, indicating that the market has still not responded to the various measures... The announcements on credit availability, reduction in the cost of credit do not seem to have percolated down to the NBFCs, which support the bulk of finance for the automotive industry. Consumer sentiment continues to be low and there is clearly a trust deficit in lending money to the dealers by the banks.

The relevant notifications regarding reduction in the depreciation rates announced by the FM have also not been issued so far. The industry has pulled out all stops in offering attractive deals and discounts to consumers. The ability of the industry to provide large discounts is limited and this only highlights the need for the government to consider reducing GST rates to 18%, which would significantly reduce the cost of vehicles and, in turn, generate 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 the festival season is around the corner, it is imperative that these decisions are taken quickly so that the industry could hope for a better festive season.

Do you see more lay-offs in the industry and its value chain?
If the current downturn leads to higher de-growth, then I do see the possibility of more job cuts in the industry. There is a multiplier effect to the component industry and to the dealer community.

How prepared is the industry to switchover to BS-VI? What is the likely price impact of BS-VI implementation?
I believe that all companies are well on their way to achieve this transformation successfully. Companies have already started getting their BS-VI models tested and homologated. The pace of this process will accelerate further in H2 FY20. The important thing now is that oil companies should roll out BS-VI fuel from 1February 2020 to ensure that BS-VI vehicles can be delivered to dealers to enable them to start selling these to customers from 1April 2020. Managing and liquidation of BS-IV inventories is also a major challenge and needs fine planning, execution.

Some people are of the view that the industry’s own delay in launching BS-VI vehicles is responsible for the current slowdown…
There is absolutely no merit in this argument. Had the industry started selling BS-VI earlier, the impact would have been disastrous as these new generation vehicles could not have been used in the absence of BS-VI fuel. Customers would know that if they purchase a BS-VI vehicle, they will have to keep it in the garage till 1 April 2020. Knowing that these vehicles cannot be used without the fuel, why would the customers buy a vehicle early?

There is an apprehension that the price increase due to the switchover may affect auto sales next fiscal. When do you see a meaningful recovery?
Our worry regarding the next fiscal is on two counts. Firstly, BS-VI will result in a significant price increase in the case of diesel vehicles, which may impact demand. Secondly, if there is a pre-buy in the months immediately preceding the changeover to BS-VI, then the demand after BS-VI may be low as much of it would have been met earlier. Keeping both these in mind, the next fiscal, specially the first half could be a challenging one.

That is the reason, why a reduction in the GST rates could be a big booster as it would offset the price increase of BS-VI vehicles.

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