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Automotive Product Finder Magazine | Timely stimulus to kick start demand
Timely stimulus to kick start demand
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The Indian automotive industry, which is going through its worst slowdown in about two decades, saw its car market shrunk by a quarter and two-wheeler sales declined 14 per cent so far this fiscal year. In a tepid economic environment, the fear of job losses is looming large in automotive and auto components segments. News from rural as well as urban areas is not much better with sales of two-wheelers, tractors and passenger vehicles witnessing a sharp contraction.
Against this background, the government has embarked on a series of stimulus measures aimed at bolstering growth, including the rollback of a tax surcharge on overseas investors, improved credit flow, transmission of lower interest rates and relaxation in FDI norms.
According to ICRA, the recent announcements by the government will provide succor for the sector. The steps to improve liquidity in the banking system would help improve the sentiment and support demand. The commitment from the government regarding validity of registration of BS IV vehicles till their registration period provide comfort to customer, given increasing thrust on electrification by government.
Measures like release of all pending GST payments to MSMEs within the next 30 days, infusion of liquidity in banking system and passing on lower interest cost benefits will ease liquidity pressure at dealerships - the most vulnerable segment in the value chain.
Step to defer enhanced vehicle registration cost is likely to revive the ailing sales in the auto sector. Besides, doubling of depreciation rate to 30 per cent from 15 per cent on new vehicles purchased till March 2020 will hopefully motivate institutional sales of vehicles. In addition, removal of ban on purchase of new vehicles by government will also help reduce the current pileup of inventory.
If the Government changes scrappage policy for old vehicles (as announced by the Finance Minister), it will not only create replacement demand but also have a benign impact on the environment.
Currently, 60 per cent of auto components are taxed at 18 percent, while the rest are at 28 per cent. The industry was hoping the Central Government, in consultation with the States, to announce a uniform GST rate of 18 per cent on all auto components. A lower rate of GST would not only ensure better compliance but also help curb grey operations in the aftermarket.
Indian automotive sector, which accounts for half of domestic manufacturing GDP, has been facing headwinds since last three quarters. Amid indications of a global slowdown, the government has demonstrated its resolve to mitigate the impact of that in India through these measures.
Prevailing subdued market sentiments matter a lot for the automotive industry which is ready to embrace the upcoming regulatory changes regarding emission (BS VI) norms. Measures, announced by the Finance Minister, may provide some immediate relief to the industry as it will put liquidity into the market and ease the squeeze on the small and medium sector.
Automotive And Auto Components Segments
Tractors And Passenger Vehicles
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