Explained: Job losses in the auto industry, and the demand for lower GST on carshttps://indianexpress.com/article/explained/explained-job-losses-in-the-auto-industry-and-the-demand-for-lower-gst-on-cars-5888744/

Explained: Job losses in the auto industry, and the demand for lower GST on cars

FADA has stated that nearly 2 lakh jobs have been cut in the last three months due to the slowdown. The slowdown continued in July, which reflected in the decline in domestic sales of up to 50 per cent announced by leading automobile manufacturers.

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Industry sales started to come under pressure from July 2018

The slowdown across the automobile sector has finally begun to impact the jobs within the sector. While the auto sector is one of the biggest job creators with almost 37 million jobs across its value chain, industry leaders now seem worried.

On Wednesday, players from the auto sector petitioned the government for assistance, including a reduction of GST from 28 per cent to 18 per cent on vehicles. In his statement at the AGM of Mahindra & Mahinda Wednesday, its chairman Anand Mahindra called for a temporary relief on GST by way of modification in slabs or removal of cess to put the industry back on track.

In a meeting with Finance Minister Nirmala Sitharaman, industry leaders, including Maruti Suzuki chairman R C Bhargava, M&M’s president (Automotive Sector) Rajan Wadhera, who is also president of the Society of Indian Automobile Manufacturers (SIAM), along with representatives from the components sector body Automotive Component Manufacturers’ Association of India (ACMA) and the dealers body Federation of Automobile Dealers Associations (FADA), drew attention to the challenges, including job losses, faced by the industry.

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As per SIAM figures, vehicle sales across all categories declined by 12.35 per cent to 60,85,406 units between April and June 2019 against 69,42,742 units in same period of last year. FADA has stated that nearly 2 lakh jobs have been cut in the last three months due to the slowdown. The slowdown continued in July, which reflected in the decline in domestic sales of up to 50 per cent announced by leading automobile manufacturers.

Loss of jobs in the sector

Industry sales started to come under pressure from July 2018 and, a year on, there is no immediate revival in sight. Companies have, therefore, started to go for production cuts.

Maruti Suzuki has cut vehicle production for the last seven months, including in July 2019. Last month, Ashok Leyland shut its manufacturing plant in Pantnagar, Uttarakhand, for nine days until July 24 because of weak demand for commercial vehicles. The plant, which can manufacture 1.5 lakh units annually, was earlier closed intermittently for some seven days between June 17 and June 29. Tata Motors is learnt to have decided to close its Pantnagar facility in July for a couple of days in order to ensure improvement in productivity.

As a result of the cuts in production, companies have now resorted to reducing headcounts, industry insiders say. The job losses have begun across the value chain, including in showrooms, suppliers, and other stakeholders, and companies are now considering reducing their headcount — starting with contractual employees.

Demand for quick resolution

Making a case for quick resolution and a cut in GST rates, Mahindra said the auto industry contributes revenues of over of Rs 1,80,000 crore to government treasuries, and the current slowdown in the auto industry poses a major threat to the financial arithmetic of the government.

“According to SIAM estimates, the slowdown has resulted in an 8% loss in GST collection in the first six months of 2019. Just to catch up with the FY19 GST collections, the auto industry will need to grow at a rate of at least 7% in the remaining 8 months of the FY20. I do believe that kick-starting the auto industry with a few short-term measures will serve a greater national purpose,” Mahindra said.

Hinting that decline in the auto sector may hurt the economy, Mahindra said that the sector has a huge multiplier effect. He said that the auto sector constitutes 7.1 per cent of the GDP, and 49% of the manufacturing GDP in the country, and it supports almost 37 million jobs (inclusive of its value chain).

Alongside a cut in GST rates, the industry has also been demanding that banks and other lenders pass the cut in rates by the Reserve Bank of India to the consumers so that demand is revived.