Budget 2019: From GST Cut To Ease In Regulatory Norms, Here's What Auto Sector Expects From FM Sitharaman

Stats show that the passenger vehicle penetration in India has just 22 cars per 1,000 individual and to match up to the level of China, India needs to add at least 25000-50,000 auto dealer outlets or more in next 10-15 years.

Budget 2019: From GST Cut To Ease In Regulatory Norms, Here's What Automobile Sector Expects From FM Nirmala Sitharaman
Indian automobile industry too has high hopes from Modi government's Budget 2019. (Image: AFP)
By: Sahil Sinha
Updated: 04 Jul 2019 11:16 PM
Budget 2019: While Finance Minister Nirmala Sitharaman and her team is all set to present Union Budget for 2019-20 fiscal, suggestions and expectations have already started pouring in from corridors of various business industries. Just like others, the Indian automobile industry too has high hopes from this Budget as it has been very long reeling under weak market sentiments and regulatory issues. As the sector has been weighted down by slowdown in sales from a long time, several experts have recommended a reduction in Goods and Services Tax (GST) on all vehicles from the current 28 per cent to 18 per cent. Stats show that the passenger vehicle penetration in India has just 22 cars per 1,000 individual and to match up to the level of China, India needs to add at least 25000-50,000 auto dealer outlets or more in next 10-15 years.

As of now, the automobile industry is going through a slowdown wrought due to a number of factors including rising fuel prices, muted consumer sentiment, the transition from BS (Bharat Stage) IV to BS VI emission norms and higher upfront insurance costs. In order to brace itself from further dampening due to price hike of 10-15 per cent for shifting to new emission norms, the industry looks at the Modi 2.0 government to alleviate past troubles and pave the way for fresh innovation.

Speaking about the suggestion given to FM Sitharaman, Federation of Automobile Dealers Associations (FADA) President, Ashish Harsharaj Kale told ABP Live that we have requested the government to consider some bold measure in this Budget to help get the industry back to growth trajectory without compromising on the much required safety and emissions standards. "We have requested the government to do this by regulating downwards the overall GST and/or the cess charged to automobiles. We believe by doing so it will create a positive consumer sentiment and better affordability in automobiles, which have seen unprecedented price hikes currently and will do so in the future too, due to stricter, but much required regulatory norms," Kale added.

A higher auto demand will also trigger a positive rippling effect on many other allied and related sector and will augur well for the overall economy, he said. Apart from this, FADA has also sought government's consideration on the following issues for sustainability of the auto dealer and has requested FM Sitharaman to revive the growth of the automobile industry:

Dealer Issues

1. Automobile Dealers Workshops & Service Stations must be covered under the ambit of MSMED Act 2006 as the subsidies and incentives received under this act will provide much needed relief to automobile dealerships which provide 25 lakh direct employment to people near their home locations without displacing them. It will also help the sector with loans with lowered interest rates thus boasting the trade further.

2. Reduction in corporate tax for proprietary and partnership firms in similar lines to what the government has done for new small private limited companies with a turnover of up to Rs 250 crores.

3. Eliminating debit and credit card charges passed on by the banks for transactions higher than Rs. 5,000, specially for auto dealers who work on paper thin margins, so that the trade is made viable and digital payments actually help in Ease of Doing Business.

4. Exemption of auto dealers on Tax Collected at Source (TCS) in the course of inter dealer/ re-sell should be brought u/s 206C of the Act and the definition of buyer should be suitable amended to exclude such transactions.

5. GST rates should be reduced to 5 per cent on margins of all pre-owned vehicles to create a win-win situation for the government, auto dealers and vehicle owners.

Auto Industry Concerns

1. GST rates on all new vehicles should be regulated to boost volumes in automobile sales. This will also help in off-setting the price hike as the new safety norms and higher insurance premiums are already increasing the cost of ownership of a vehicle. This coupled with implementation of BS-VI will even further increase the prices of commercial vehicles, passenger vehicles and two wheelers by another 10-15 per cent.

2. Attractive enough incentive for successful implementation of vehicle scrappage policy across the country will have benefits of reducing pollution, reducing fuel consumption, improving safety (reducing fatalities from 1,40,000 people presently killed annually in road traffic crashes) and also giving a boost to the auto sales.

3. Ease of liquidity to Non-Banking Financial Corporations (NBFCs) further help the auto trade in getting back on the right track as it will help both, the auto dealers as well as the end customers in getting loans at regular rates.

FADA also suggested that auto retail should be granted industry status as it will bring better financing options, since the sector is capital intensive in nature. The automobile dealers body believes that are various benefits of getting an industry status such as, priority lending from banks, external commercial borrowings, easy financing from top lenders, entry of PE Investments, easier access to domestic and global funds and better tax benefits.

Some of country's leading automakers including TVS Motor Company, Hero MotoCorp, and Bajaj Auto have already backed the proposal of GST rate cut on automobiles for helping create demand and pushing the sector to bounce back. However, not all automakers are siding with this view. In April, passenger vehicles sales dropped by 17.07 per cent. This was steepest decline in nearly 8 years - the biggest fall since October 2011. Several industry experts blamed weak customer sentiment led by liquidity crunch, uncertainty before elections and high product prices.