Automobile sector needs more than the GST band-aid to ward off a meltdown threat

Passenger vehicles sales have hit a two-decade low and will need substantive incentives from the government to avoid a meltdown.Twitter/ANI

While sales of cars and SUVs skidded for a 10th straight month in August, marking the worst slump in two decades, mere goods and services tax (GST) relief may not do much to arrest the disastrous trend, industry observers say. Sources say Finance Minister Nirmala Sitharaman had hinted at a reduction in the GST in an attempt to revive the sector, in which job losses are mounting, dragging down upstream and downstream segments.

Passenger vehicle deliveries in August fell 41 per cent from the same month last year to 1,15,957 units, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Truck and bus sales dropped 39 per cent for the same period, the report says. Two-wheeler sales, which are a key indicator of the demand in rural India, fell 22 per cent to 15 lakh units.

The automobile sector employs millions of people directly and indirectly and contributes more than 7 per cent to the nation's gross domestic product (GDP), according to a report of McKinsey & Co. While the country is facing an economic slowdown, the falling income growth for farmers in rural India has contributed to the sales decline.

Auto
Car and motorcycle makers have laid off 15,000 people and component manufacturers 100,000, with the remaining job losses at dealers. Reuters

Companies from Suzuki Motor Corp's local unit to Mahindra & Mahindra have cut production and laid-off workers to cope with the slowdown, a report on the Livemint website says. The administration of Prime Minister Narendra Modi has lifted a ban on new vehicle purchases by state-run departments and offered other concessions, in an apparent bid to boost demand. Transport Minister Nitin Gadkari said he would convey the demand for a lower levy on petrol and diesel vehicles to the finance minister, the report says.

Vehicle sales across categories registered a decline of 23.55 per cent to 18,21,490 units from 23,82,436 units in August 2018, the report added. Vehicle sales of all categories declined during the month.

Kenichi Ayukawa, the CEO of Maruti Suzuki, India's largest carmaker, said last week the government was sensitive towards the slowdown in the auto industry. Addressing the annual convention of SIAM, Ayukawa said several factors like high GST rates, farm distress, stagnant wages and liquidity constraints have combined to create the present situation. Maruti Suzuki has reported a 32.7 per cent decline in its total vehicle sales in August 2019 on a year-on-year basis. Last month, the company sold 1.06 lakh units, including exports, compared to 1.58 lakh vehicles in August 2018.

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