Will request FM to cut GST rates on automobiles temporarily: Nitin Gadkari

NEW DELHI: Road transport minister Nitin Gadkari said he would urge finance minister Nirmala Sitharaman to cut goods and services tax (GST) rates on automobiles temporarily in order to help revive the industry following a sustained clamour from companies for such a reduction.

“I will request the FM to look at a temporary reduction of GST. The sector needs support, which will help in improving sales,” Gadkari said at 59th convention of Society of Indian Automobile Manufacturers (SIAM). “It is your demand that there should be reduction in tax of petrol and diesel vehicles. Your suggestions are good. I will take your message to the FM... The sector needs help right now to increase vehicle sales.”

Carmakers sought greater reassurance on this front as well as clarity on a time frame as consumers may delay purchases on rate cut hopes.


‘Govt Concerned Too’
Investors took heart from the minister’s remarks though — auto stocks recouped some lost ground after Gadkari’s assurance of all possible support. Tata Motors rose 7.81%, Maruti Suzuki India advanced 2.41% and Mahindra & Mahindra was up 2.23% on the BSE. Led by gains in these scrips, the BSE Auto Index went up 2.13% to end Thursday at 15,563.90.

Gadkari assured industry leaders that the government is concerned about the slowdown. “We know what you are worrying about now,” he said. “The government is also concerned. The slowdown has relation to employment potential as well as growth of the country... The FM is trying to find solutions.” The auto market is reeling under a prolonged slowdown that reflects the overall economic malaise — GDP growth was at a six-year low in the June quarter. Automobile sales recorded their steepest fall in nearly two decades in July. The government has announced a series of measures aimed at reviving growth, including some incentives for the auto industry.

When asked whether the market had bottomed out, TVS Motor chairman Venu Srinivasan said Bharat State VI emission norms could cause another jolt. “There is going to be a sticker shock from a consumer point of view,” he said. “There is no benefit for him even as the society and environment will benefit (from BS VI norms). That is one bridge which is yet to be crossed —that is why we are saying that government should soften it with the GST cut.” BS VI norms will come into effect from April 1 next year.

The Indian automobile industry’s growth story “is about to collapse,” thanks to uncertainty among consumers, the push for electric cars and the BS VI transition, said Tata Motors CEO Guenter Butschek at the SIAM convention. “We all know it,” he said.

Pointing to the confusion within the industry on GST, he urged inclusive and clear thinking. He said internal combustion engines (ICE) and EVs should be seen as evolving technologies rather than enemies of each other.

Kotak Mahindra Bank MD Uday Kotak elaborated on the challenges faced by the industry with respect to finance.

“As the economy slows down, there is an impact on the credit score of the consumers and if there is a drop in credit scores then the number of borrowers to whom money can be available starts coming under pressure,” he said. “Therefore, the marginal borrowers who two years ago were getting finance easily, stop getting financing today. There’s no doubt that the money is available but the tightening of credit underwriting is also happening at the same time.”

Gadkari said the government is looking into the auto industry’s demand for a vehicle scrappage policy and making efforts to resolve issues over finance availability. He said the road ministry has firmed up plans to award 68 projects valued at Rs 5 lakh crore in the next three months, which would help spur sales of construction equipment and commercial vehicles. Also likely are incentives on hybrid vehicles, he said. Manufacturers are tying up with banks to ease inventory and retail financing, doling out record discounts, cutting back costs and rolling out new products to sustain operations and excite consumers.

Maruti Suzuki executive director Shashank Srivastava said a possible reduction in GST rates was currently speculative. “The government will evaluate and decide on that. We are looking at all factors which are impacting sales and addressing each one individually,” he said. The company has tied up with Bank of Baroda and Federal Bank to ease inventory funding for dealers and arrived at arrangements with banks for 100% retail financing of vehicles. It’s working on offsetting the increase in vehicle acquisition costs due to regulatory requirements by offering more value to customers and lining up new launches to excite buyers.

“There has been an increase in enquiries, but they are yet to convert into retail sales,” Srivastava said. “All that is possible, we are trying. If additional help comes in (from the government) it will certainly help... Retail sales should go up in the festive months.”

Mahindra & Mahindra MD Pawan Goenka was cautious. “The current slowdown is different from the previous ones as it has been triggered largely by domestic factors,” he said. “There is no simple solution. The industry is doing everything it can... Average discount on vehicles today stands at around 5%. If there is a GST cut by 5% or 10% that will improve significantly affordability of vehicles... It is difficult to forecast today what will happen (in the festive season) this year.”