After the complete mayhem concerning the unprecedented slowdown in the Indian auto industry, it looks like there's a silver lining. Finance Minister- Nirmala Sitharaman today announced several sops for the auto industry in the post budget revival plan while reviewing the overall economy slowdown. The Minister said that the beside reducing interest rates on auto loans, all BS4 vehicles which will be purchased by consumers before April 1, 2020, which is the deadline for BS6 emissions, will be allowed to ply on Indian roads for their complete registration period.
The much needed relief was echoed in the reactions from the auto industry. Pawan Goenka- MD Mahindra and Mahindra said, “Today's announcements will go a long way in improving sentiments because it shows that the government is listening to the industry." He also believes the financing concerns have been more or less taken care of and so that and other measures will incentivise vehicle purchase. The FM has said there is ‘more to come'. The upcoming scrappage policy will also be a big boost. Will wait and see."
Automakers have already been investing a lot to make their cars BS6 ready ahead of the April 2020 deadline
The suffering auto industry needed a boost and the first bit of hope came from Prime Minister Narendra Modi who said that the finance ministry has had a constructive dialogue with the automotive manufacturers. The message too was clear that the government was not looking to orphan the conventional ICE powered cars but a calibrated transition was the need of the hour.
Another big announcement was about the validity of the registration of BS4 vehicles. The Finance Minister made it quite clear that all BS4 vehicles which will be purchased by consumers before April 1, 2020, which is the deadline for BS6 emissions, will be allowed to ply on Indian roads for their complete registration period. The registration certificate of a vehicle is valid for 15 years across India (10 years for diesel vehicles in the Delhi-NCR region) and all BS4 vehicles will complete the standard registration tenure. Though the news has definitely come as a reassurance for the entire industry, one the key demands still remains unaddressed. Commenting on this move, Rajesh Goel, Senior Vice President and Director- Sales and Marketing, Honda Cars India said, “The clarification on the validity of BS4 vehicles and the future of Internal Combustion vehicles,in addition to deferring proposed vehicle registration fee hike, will help to address the issue of postponement of purchases and customers will buy BS4 vehicles. The additional 15% depreciation benefit will catalyse the retail demand through buying by businesses and corporates.”
The slump in sales had seen inventory piling up at factories and this hampered sales
What also surprised most is the prompt action taken by the government to make sure that the auto industry thrives in the country. Rajan Wadhera, President- SIAM said, “ The FM has responded with a package of measures within 2 weeks of its consultation with the industry. The release of Rs 70,000 crore for PSU banks recapitalisation and Rs 20,000 crore for National Housing Bank will give banks and NBFCs enhanced liquidity in the system. The removal of ban on purchase of vehicles by Government department and 15 per cent higher depreciation for all types of vehicles purchased before 30th March 2020 should also give a definite boost to vehicle demand in the short term, especially vehicles meant for commercial use."
While there was a lot to cheer about, there were some issues that were not addressed. We told you recently that a delegation of the automotive industry met the finance minister to talk about temporary reduction of GST rates, however, there's no movement on that front. Wadhera said, "We would also want the transaction costs to go down, through GST reductions. We remain hopeful that this will be addressed in the forthcoming GST meeting." This sentiment was echoed by Vikram Kasbekar - Executive Director - Operations (Plants) and Chief Technology Officer, Hero MotoCorp who said, “We would reiterate our request that two-wheelers, which are neither luxury nor ‘sin' goods, require a reduction in the rate of GST from 28 per cent to 18 per cent"
However, the sentiment overall is positive and automakers too are relieved that this announcement comes right before the festive season. S S Kim, MD &CEO Hyundai Motor India said, “We are optimistic that this move will boost the customer sentiment in the current market scenario and encourage customers' acquisition of car in the coming festival season.”
Luxury carmakers too welcomed this move with Martin Schwenk- MD & CEO Mercedes-Benz praising the government's prompt action and said that the company was confident that this will boost the demand in the auto sector. These sentiments were echoed by Charles Frump, Managing Director, Volvo Car India, who said, "Today's announcements by the government will rejuvenate the economy through flow of credit and revival of consumption. The government has clearly signalled full support to the automobile industry which is reeling under a prolonged slowdown for more than 12 months now." Rahil Ansari, Head- Audi India also spoke on similar lines and said, "We have always maintained that luxury is not a sin and are thus enthused by Government's focus on reviewing the Super Rich tax. This should improve customer sentiment specifically in the luxury industry."
Two wheelers sales have also been tapering due to late monsoon which has affected rural demand and the companies are optimistic after the announcement. Venu Srinivasan, Chairman- TVS Motor told carandbike, “The promptness of this government's response is reassuring for not just industry, but for the common man as well because it's putting liquidity into the market and easing the squeeze on the small and medium sector. While there are indications of a global slowdown, this government has demonstrated its resolve to mitigate the impact of that in India through these measures. This is the stability and proactiveness that industry wants.”
The announcement definitely comes as a big relief at a time when auto sales are reeling due to the massive downturn. Automakers have witnessed unprecedented year-on-year (Y0Y) decline in sales across segments for almost a year now and as many as 10 lakh jobs across the sector are at stake. If the government lends further support and reduces GST rates on PVs in the next GST council meet, it will go a long way to revive the industry form this massive plunge.