With the government declining to cut Goods and Services Tax (GST) on automobiles, experts believe that the industry will have to take measures by itself to clear inventory as well as to boost demand, which has fallen to a multi-decade low in the country. “The industry has to find its own balance to enhance demand,” said Rajan Wadhera, president, Society of Indian Automobile Manufacturers (SIAM), reacting to the GST Council’s decision on Friday to not reduce the rate on vehicles from 28 per cent to 18 per cent — a long-standing demand of the industry.
As sales of automobiles across various segments witnessed their worst-ever fall in August, the industry has been demanding a cut in taxes, which would have brought down the net price of vehicles.
However, the GST Council, which met in Panaji, Goa on Friday, reduced the GST compensation cess only for passenger vehicles of sub-segment 10-13 seaters with length less than four metres, which, according to industry estimates, accounts for less than 10 per cent of the total sales.
Even as discounts offered by dealers and manufacturers are at an all-time high, the absence of any relief from the government also increases the possibility of customers getting higher discounts going forward, as companies need to liquidate the excess Bharat Stage-IV
(BS-IV) astocks before April 1 next year.
From April 2020, the industry will move to BS-VI emission norms, which means selling vehicles fitted with BS-IV engines will not be allowed and, therefore, will become scrap.
Discounts by manufacturers, including Maruti Suzuki India, Honda Cars and Bajaj Auto, have been ranging from 5-15 per cent — a desperate move adopted by manufacturers who are looking to liquidate stocks that have piled up to above normal levels owing to poor demand.
Prayesh Jain, lead analyst-institutional equities, Yes Securities, said there is room for additional discounts by automobile manufacturers. “Current discounts are already at an all-time high, which can possibly drive volumes in the ensuing festive season,” Jain noted. As the reduction in GST seemed difficult, the industry asked for temporary relief so that the demand in the festive season improves and inventory gets cleared.
Moreover, CEOs of many automakers stressed that more than the GST cut, it was important that the government clarifies its stand, as customers have been postponing purchases in anticipation of a better deal.
Guenter Butschek, chief executive officer and managing director, Tata Motors Worldwide, last month said, “If it is possible let us know, because the customer expectation this time is high and booking cancellations have been happening.” He further said that showrooms are empty because the customer is expecting a better deal post the GST cut. FE