Thanks, but no thanks, carmakers tell Jaitley
Jun 25 2014 , Pune/New Delhi
Excise sop extension to arrest fall, not boost sales
In February, former finance minister P Chidambaram had reduced excise duty on automobiles to boost manufacturing. Extension of the duty cut could not wait till the Union budget on July 10, as it was to expire on June 30.
Excise duties on small cars, motorcycles, scooters and commercial vehicles were reduced to 8 per cent from 12 per cent, on sports utility vehicles (SUVs) to 24 per cent from 30 per cent and on large and mid-segment cars to 20-24 per cent from 24-27 per cent.
The auto industry has been grappling with prolonged slowdown. Arresting a declining streak, sales picked up marginally at 3 per cent in May, after eight straight months of contraction, according to the Siam data.
Car sales fell for the second consecutive year in 2013-14 with a drop of 4.65 per cent at 17,86,899 units compared with 18,74,055 units in the previous year. In 2012-13, car sales fell 6.69 per cent, which was the first decline in a decade.
“Although, the excise sops introduced in February helped increase volumes in May marginally, we hope the extension till December will continue the sales momentum,” Rakesh Srivastava, senior vice-president, marketing and sales at Hyundai Motor India, India’s second largest carmaker by sales, told Financial Chronicle.
However, he said to put the automobile back on track and kickstart GDP growth, revival of the economy was important. This would take time.
“Extending excise sops is one positive factor, but the government will have to announce comprehensive policy changes to effect structural changes to increase auto sales,” Ranjit Yadav, president for passenger cars at Tata Motors told this newspaper.
“The enquiries and footfalls at dealerships have increased, but all are waiting for the budget to unveil. If it provides stimulus to the economy and the auto industry, it will help revive sales,” N Raja, director and senior vice-president, sales and marketing at Toyota Kirloskar Motor, said.
“We expect the industry to show positive results in the coming months, finance minister Jaitley said, adding, “We also expect that the benefit of these duty concessions would be passed on to the consumers at large.”
“Any loss of revenue can be made up in the long term. I hope the economy benefits from the extension of excise duty cuts… Considering the present situation in various sectors, the government today has decided to extend the facility of this reduced excise duty to all those sectors for a further period of six months, i.e., they will continue till December 31,” Jaitley told reporters.
Krupa Venkatesh, a senior director in Deloitte, however, felt that the excise cut had created an inverted duty structure in respect of certain inputs, which also needed to be addressed if the sector was to reap the entire benefit of reduced duties.
“We will have to wait for the budget to announce strong measures to revive the ailing economy. It will take at least the next six months to build up economic activity across industrial sectors, including infrastructure and mining projects and environment clearance for other projects to create a positive movement,” P Balendran, vice-president at General Motors India, said.
“The earlier excise sops for three months actually came during the electioneering months with nobody sure of which party would form the government. So those who wanted to buy cars deferred their decisions,” Abdul Majeed, auto expert and partner at PriceWaterhouseCoopers said.
He said extension of these sops would not return the Indian automobile sector to its peak period when sales grew 23-24 per cent in 2010-11.
“First, the government has to put the economy on track with GDP growth rate at 7-7.5 per cent from the present 5 per cent. To do that, it must kickstart the investment cycle, tame inflation, get the regulatory framework in place to support investment, boost growth and generate employment, which would boost sentiment anyway,” Majeed said.
“With uncertainly in the market and the GDP growth sliding for over two-and-a-half years, the excise duty cut was to reassure carmakers and support the OEMs suffering from declining sales and taking hit on their bottomlines,” Wilfried G Aulbur, managing partner at Roland Berger Strategy Consultants, said. He argued that the present sops would arrest the decline in auto sales.
Aulbur said the extension of sops would reassure buyers and the auto sector over the next six months and sales would boost only once the economy improved.
“For the past 14 months, we have seen continuous decline because of various factors, including a weak economy, high acquisition costs, rising fuel prices and rising inflation impacting passenger vehicles sales. Buyers were shying away from the auto market as it involved big-ticket purchases. The excise sops, along with kickstarting infrastructure and mining projects, among others, would trigger positive sentiments to boost sales,” Sugato Sen, deputy director general at Society of Indian Automobile Manufacturers (Siam), said.
Chidambaram had said while presenting the interim budget that the economic situation demanded some interventions that could wait for the regular budget.
“Demand is not based only on facts and figures like the GDP rate, interest rates, fuel costs, but also on positive market sentiments which have turned negative to impact auto sales adversely,” Jnaneshwar Sen, senior vice-president, sales and marketing at Honda Cars India, said.
He said with the new government, the Bombay Stock Exchange benchmark Sensex had gone up, but it would take time to get the automobile sector back on track.
Renault India CEO and managing director Sumit Sawhney said the new government had shown a positive intent towards growth of key sectors to revive the economy. But considering the slump in the auto sector during the past two years, this just might not be enough.
“We would like the government to take a long-term view to have a unified excise duty structure and look forward to further reduction in the duty in the budget,” Sawhney said, adding, “The government should also look at policies to check emission and fuel efficiency norms, fleet modernisation and scrappage policy for better environment conditions. This would provide the much-needed impetus for the automotive sector, which is a key driver for the overall economy and industrial growth,” he said. Daimler India Commercial Vehicles (DICV) spokesperson said the excise cuts were a short-term respite, but sustainable policies and industry-oriented reforms would have to be introduced to boost infrastructure and economic growth.
(With inputs from D Govardan in Chennai)