Stimulus, tax rejig needed to rev-up auto sector

By Rohit Vaid

New Delhi/Mumbai, June 13 (IANS) A stimulus package along with reduction in GST tax rate and a scrappage policy are required to rev up India's automobile sector which faces recessionary downtrend.

The recommendations for the full-year budget 2019-20 comes as sales of volume driven passenger cars and two-wheelers continue to decline.

Evidently, off-take data for May paints a grim picture with domestic passenger cars' sales down 26.03 per cent to 147,546 units.

Notably, the crucial manufacturing sector has been dented via consumption slowdown, especially in the rural areas along with high finance cost.

Consequently, slipping demand has forced OEMs (original equipment manufacturers) to curtail production thus stalling hiring levels and wages.

Industry body -- Society of Indian Automobile Manufacturers -- has recommended a reduction in GST tax rate from 28 to 18 per cent.

"Automobile sector is the engine of manufacturing growth in the country. The sector contributes around half of manufacturing GDP and 11 per cent of the total GST revenue. Almost 37 million direct and indirect jobs are supported by the sector, thus it is necessary to support and sustain it," SIAM's Director General Vishnu Mathur, told IANS.

"A stimulus for the industry is required at this time to support the industry. We seek an urgent reduction in GST tax rate from 28 to 18 per cent and a scrappage policy for older polluting vehicles."

Besides, the industry body has called for a reduction in corporate tax rate for all companies from the current 25 per cent.

It has also sought weighted deduction for R&D activities should be "reinstated at 200 per cent till such time the corporate tax rates are reduced to 25 per cent".

"With budget announcement of the new government expected early July, the industry has sought for some sops to reverse the trend and bring in positive momentum through some short term measures like reduction in tax component in GST," said Sridhar V., Partner, Grant Thornton India LLP.

"Another demand but for the longer run is for a scrappage policy. This is expected to stimulate demand over a longer period of time primarily in the commercial vehicle segment. One other expectation from the sector will be the continuing spend on the road infra and strengthening the road network."

According to Rahul Mishra, Principal, A.T. Kearney, the budget should expedite implementation of scrapping policy, retain R&D tax exemptions and provide fiscal support for skill development in new areas like digital, connected cars and shared mobility.

"The Budget should also come out with an investment and upgradation plan, aligned with overall industry roadmap, for setting and scaling up autonomous research and testing agencies," Mishra said.

Apart from cars, the other sub-segments of passenger vehicles is also witnessing a downturn. The number of utility vehicles sold in India went down by 5.64 per cent to 77,453 units in May 2019, while 14,348 vans were sold last month, down 27.07 per cent from 2018.

Overall, passenger vehicle sales declined 20.55 per cent in May to 239,347 units from 301,238 units.

In the commercial vehicle segment which is a key indicator of economic activity, domestic sales were down by 10.02 per cent to 68,847 units last month.

Similarly, the data pointed out that three-wheelers' sales decelerated. The segment's offtake went down by 5.76 per cent to 51,650 units during the month in consideration.

In addition, overall sales of two-wheelers, which include scooters, motorcycles and mopeds, edged lower by 6.73 per cent to 1,726,206 units.

As per the data, total sales of the Indian automobile sector declined by 8.62 per cent during May 2019 to 2,086,358 units across segments and categories.

Overall exports of vehicles across categories was lower by 0.49 per cent to 396,833 units.

(Rohit Vaid can be contacted at rohit.v@ians.in)