India's famed Auto sector seems to have headed for tough times, given the sudden lack of appetite among buyers.
Six months ago, the ministry for heavy industries and public enterprises published a report claiming a positive outlook. In its report, the ministry said that the auto sector contributed 7.1 percent to the total GDP and employed 32 million people directly or indirectly. It further added that the auto sector in India was likely to attract investments to the tune of $8 - 10 billion by 2023.
Seven months after the report was published, things look far from the brighter side. A sector that usually touts itself as the world's fifth largest market (according to Society of Indian Automobile Manufacturers) overall has reported of constantly dipping sales numbers.
Domestic sales for the month of June too declined. This was the eighth consecutive month that numbers were in the red.
• Maruti sales were down by 14%
• Tata Motors down by 14%
• Mahindra & Mahindra down by 6%
A slowdown in sales could hit hiring trends in the sector.
"The slowdown has led to an imminent shutdown for a short period to begin with, which also impacts the job situation for temporay (employees), and can spread to the permanent ones," Grant Thornton's India Partner Sridhar V was quoted as saying in an IANS report.
"There is a freeze in new hiring, while some job losses have also been caused due to the slowdown that has hit the sector very badly," FADA President Ashish Harsharaj Kale said.
According to the Federation of Automobile Dealers' Association (FADA) data, recently some 300 dealerships have closed.
A slowing economy, slowdown in consumption, farm distress and high interest costs have reportedly dented the prospects for the auto sector.
The budget, to be announced by Finance Minister Nirmala Sitharaman on Friday is expected to ease some of the worries for the sector. Federation of Automobile Dealers Associations has proposed a set of recommendations to the FM.
Key among their set of demands are MSME status and an industry status in the near or mid-term to support their jobs. Ashish Harsharaj Kale, FADA's president said that existing over 25,000 outlets provide jobs to at least 50 lakh individuals (direct and indirect).
"India today has a passenger vehicle penetration of 22 cars per 1000 individuals while China has 164 vehicles per 1000 individuals. To even reach the levels that China has achieved, India needs to add at least 25000-50,000 Auto Dealer Outlets or more in next 10-15 years. This will result in requirement of not just Additional Working Capital but Capital for Infrastructure to the tune of Thousands of Crores and also Additional Workforce to the tune of 1 Crore for new outlets"
The association has also sought attractive incentives for scrapping vehicles. "A successful Implementation of the Voluntary Policy will further Pave the Way for a Mandatory Scrappage Policy in the Future", said Kale.
GST Rates on all New Vehicles should be regulated to boost volumes in Automobile sales. This will also help in off-setting the price hike as the New Safety Norms and Higher Insurance Premiums are already increasing the cost of ownership of a vehicle. This coupled with implementation of BS-VI will even further increase the prices of Commercial Vehicles, Passenger Vehicles and Two Wheelers by another 10-15%.
Other Key issues that the association has proposed are as follows:
• "Exemption of Auto Dealers on Tax Collected at Source (TCS) in the course of Inter Dealer / Re-Sell should be brought u/s 206C of the Act and the definition of buyer should be suitable amended to exclude such transactions."
• "GST Rates should be reduced to 5% on margins of all Pre-Owned Vehicles to create a win-win situation for the Government, Auto Dealers and Vehicle Owners."
The budget is also likely to also bring to the fore a set of measures to incentivize ownership of electric-vehicles.
Reports so far suggest that tax incentives, SEZ holidays, and GST revisions could be on cards for the e-vehicle sector. Currently, the tax rate (GST) on EVs stands at 12 percent while for batteries it is at 18 percent. There have been suggestions and representations for a tax revision.
Besides taxes EV manufacturers have also pitched for bringing the overall acquisition costs down for a consumer and a priority sector lending status.
N Nagasatyam, Executive Director with Olectra Greentech, an EV manufacturing company said, "Though the long-term benefits of EVs are multi-fold still the relatively higher cost of acquisition of an EV is a bottleneck in its adoption. We expect the government to include Electric Vehicles in Priority lending sector so that the prospective buyers can be encouraged to move towards this environment friendly transport option. The financial assistance will help in compensating the cost difference of the EVs making it more attractive for the buyers."
A recent sector report from Kotak Institutional Equities suggests that 28 percent of the Indian automotive sector (except commercial vehicles) will make the switch to electric by FY30. Scooters and three-wheelers are expected to adopt the e-way faster than passenger cars.
As part of its wishlist, electric vehicle makers' association SMEV (Society of Manufacturers of Electric Vehicles) has proposed a green cess on non-electric vehicles.
Sohinder Gill, the agency's Director was quoted in a PTI report as saying, "We strongly advocate the imposition of a notional green cess on the polluting vehicles and use it to accelerate electric mobility."