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The Economic Times

India's auto sector: Traversing a road with many bumps

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With 2019 seeing the worst decline in auto sales in the past two decades, the automotive industry is desperately looking forward for some relief or support in the budget.

One solace for the industry is that the government is in a “listening mode”. RC Bhargava, chairman of Maruti Suzuki, told ET that the government has extensively interacted with industry and was aware that demand has to increase. The government is best placed to take decisions to ensure that happens, keeping all aspects of the economy in mind, he added. The auto industry is particularly worried that poor economic growth has put pressure on per capita income, limiting consumption. Moreover, the cost of acquiring a vehicle has gone up 10-12% in the last couple of years. Vehicle costs are expected to go up 8-10% more when BS-VI emission norms come into force in April. This would further impact affordability and sentiment. The industry, therefore, has again asked the government to reduce the goods and services tax to 18% from 28%.

Automakers have also requested the government to roll out monetary benefits for scrapping pre-1995 vehicles. This will, they say, support demand generation and also help reduce pollution and combat climate change.

The ministry of road transport and highways has come out with guidelines on establishing scrappage centres and proposed increasing re-registration charges to discourage use of old vehicles. But a formal incentive-based scrappage policy with monetary support is required.

The industry is also seeking allocations to support state transport undertakings procure buses to boost public transport.

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To accelerate electrification, the industry has urged the government to do away with the import duty on lithium ion cells to promote local battery manufacturers and higher tax benefit on greener vehicles. Falling vehicle sales have also affected auto component makers — the industry saw a 10.1% decline in turnover in the first half of FY20. Most of the factories are operating at their lowest capacity utilisation in years.

Deepak Jain, president of Automotive Component Manufacturers Association, says the auto industry is going through one of its most challenging times. “A uniform GST rate of 18% for all auto components is a key recommendation from us for the budget. That apart, the industry is keen that a technology development & acquisition fund be created to facilitate R&D indigenously,” adds Jain.

Reviving demand should be the priority, says Vinodkumar Ramachandran, partner for automotive and industrial manufacturing at KPMG India. This will mean leaving more disposable income in the hands of the consumer. Quick completion of metro rail projects through budgetary provisions will reduce traffic jams, encouraging more people to buy vehicles. “Reviving NBFC funding to stimulate rural-demand growth and providing adequate support for the development of a proposed Gigafactory can stimulate demand for electric vehicles and be beneficial for the industry overall,” adds Ramachandran.

The automotive sector contributes about 7.1% to GDP, 49% to manufacturing GDP and 15% to GST collection. A pickup in auto demand in October-November has been a positive for GST collections, too.
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