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Auto sector needs sops to reverse structured degrowth: SIAM president


Auto companies’ share of the wallet is now almost 20% below the 15-year average in your view. Do you see the underlying factors as more cyclical or structural?
The issues are turning out to be a little more structured because in the last two and a half years, there are many things that have happened which are quite permanent in nature. One big thing is the cost increase that has happened in all segments of the auto industry where quite a few of the regulatory changes — be it on account of emission, safety and other things like insurance, premium for five years and road tax registration increase have led to almost 30 to 40% price increase in the various automotive segments.

This has definitely led to customers thinking about buying personal vehicles. In the commercial vehicle segment, the axle loading norms led automatically to 25% increase in capacity in the medium and heavy commercial vehicle segment (MHCVs). It is something which is here to stay. Since about 25% capacity got added and growth of 25% is typically achieved over two to three years and now the GDP growth has been coming down. These are very structured things that have happened to the industry.

Unless we get back to 8% growth level, we are going to have problems. The other thing was the availability of finance and affordability is also not something which is just cyclical. We have seen the NBFCs, the way there was a hold back and the money flow was not very good. We would not call it cyclical because it is the longest recession the auto industry is facing in almost a decade and consequently it is not easy.

We have seen sentiments improving in some segments largely in the PV segment, and that too only in the UV segment, while car sales were down 23%. UV segment growth came on the basis of new launches and that segment has grown 6%. Passenger cars have degrown 23% overall. The industry is still not seeing any growth coming.

Auto slowdown is a function of what is happening to the millennial demand and also the fact that there was a lot of auto demand which got created when interest rates were low. The government really cannot do anything to fix it. This is cyclical and it has to come back on its own?
It is a structured degrowth that we are in. In the past also, the government has extended support in 2009 and 2014 at times of degrowth. Government did come up with tax rebates which saw the growth coming back and now also we have proposed to the government that with the introduction of BS-VI, there is going to be 8-10% price increase. This kind of price increase is very huge and is going to result in higher GST collections. So, why not reduce GST? For the government the GST collections are neutral, whereas the prices do not go that high and hence we do not have an issue of demand falling. That is why the rationale for GST reduction has been put forward to the government.

Recently, industry had been saying that over-regulation is killing the industry and there is little hope from the Budget. RC Bhargava has been saying that we need long-term planning to tackle the slowdown. What are you expecting in terms of booster shots?
Well in our discussions recently with the finance minister and also the convention, we have requested the government to quickly come up with the scrappage policy because it really helps both the industry as well as the climate change that we looking forward to in terms of reducing the emission norms and also addressing the energy security issue of the country.

Crude consumption can go down if there is a proper scrappage policy which is incentivised both by the government as well as the manufacturers. We should come up with a policy quickly and that will give a boost to the industry. That is one request that we have made.

The other point that I have mentioned was GST cut as it will definitely help from 1st April onwards because the BS-VI vehicles are going to be expensive.

Third, GDP growth is possible due to increasing consumption, putting more money in the hands of the people. Those are the kind of things that will help revive demand and help create growth for the auto industry.

How will an incentive-based scrappage policy help? We understand we need a 15x jump in annual scrappage capacity. Is that even realistic in the near term?
The scrappage handling has been already announced. There are policies and schemes; sops that have been laid out. Some of us have already set up scrappage centres. I believe that has been parallelly started. Now it is a question of coming together and announcing scrappage of a kind where let us say maybe a 50% off on GST, road tax, insurance and other kind of taxations post acquiring the vehicle. Somebody has to put it together and there has been discussions going on on this, but it is getting delayed.

Just on the demand side we are watching out to see if there is any changes to the income tax slabs. Is there anything that you feel would be a huge help?
In order to increase demand, more money has to be put into the hands of the people. Demand will come back in some sectors, not in all the sectors. The auto sector has two very major constituents. One is the personal segment, other is the commercial segment and commercial segment mirrors economic growth. If GDP growth rate is good and accelerated, then definitely the commercial vehicle sides will see growth coming in.

On the personal vehicle side, growth will come in if we put more money in the hands of the people. We are all hearing that income tax slabs will get corrected and there is a likelihood that at the entry level, there would be a change in the slab. We are looking forward to that happening. We are hopeful that the finance minister will consider giving more money to people by reducing the income tax rates.





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