Top executives of India’s leading automobile firms urged the government to undertake a slew of measures, including a cut in the goods and services tax (GST) on vehicles and an incentive-based vehicle scrappage policy to aid demand recovery against the backdrop of the covid-19 pandemic.
“Demand in India is constrained by affordability and the main reason is taxation from our socialist days. Demand creation has been an issue and this has to be backed by the government. Affordability has been an issue for some time and cost of manufacturing will be higher,” said R.C Bhargava, chairman, Maruti Suzuki India Ltd at Mint’s Pivot or Perish webinar.
The government should consider reducing GST on vehicles across categories while road taxes and the three-year insurance payment on vehicles should be collected on an annual basis to make vehicles more affordable, he said. Bhargava also underscored that the government and Indian industry should change the way they interact with each other, in the wake of the crisis, and engineer a recovery in the automobile sector and the overall economy.
“The industry and the government have to change the way they interact. There was trust deficit due to corruption, tax evasion and other reasons, and that will have to change,” he said. “In the last three years there were companies moving out of China to other countries but not many of them have come to India. We have to create an Indian industry which has to be globally competitive,” he added.
The auto industry has faced several headwinds over the past one-and-a-half years and experienced a double digit decline in volumes in FY 20. Vehicle manufacturers had to close their factories from 22 March, following the lockdown announced by the Union and state governments to contain the spread of the covid-19 pandemic.
Automakersin the meantime were working with their suppliers to create standard operating procedures (SOPs) that need to be followed once manufacturing resumes. Vikram Kirloskar, vice-chairman, Toyota Kirloskar Motor India, and president of the Confederation of Indian Industry said the auto industry production might decline by 50% in the current year because of the covid-19 pandemic and it might take till June next year for production to return to return to normal levels.
“If there are reserves that some of us have built over the years then it is possible to run for two or three months but not beyond that. The auto industry also generates a lot of employment through dealerships and that needs to be looked after. In the short term we have to try to keep our noses above water,” said Kirloskar. After remaining shut for more than a month, most automakers have started to open their factories in May, albeit with very low capacity.
This decision of the companies follows the Union government’s decision to allow gradual resumption of economic activity by relaxing lockdown restrictions in parts of the country identified as green and orange zones. “From sourcing of raw material for cars to resale price of cars, there are thousands of touch points in the full value chain. If the government wants revenue, then it is in their interest to revive the auto industry,” said Rajeev Chaba, president and managing director, MG Motor India.
“The government and industry have to come to an understanding that we have to live with coronavirus. We are finding it difficult to open dealerships. Plants have started almost nine days ago but supply chain is still an issue. Some small parts are stuck because they are produced in red zones,” he added.
“We will be able to restart 50-70% of our production. That’s not the problem. The demand side is a huge challenge. We need demand stimulus so that volumes can come back. That’s the biggest challenge the industry is going to face,” said Rajan Wadhera, president, Society of Indian Automobile Manufacturers. With companies aiming to move out of China and search for alternative investment destinations, India needs to have a competitive policy to attract these investments, said Bhargava.