Crisis in auto sector: Steps Centre is taking to revive demand, supply

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The Central government on Friday gave a major boost to the automobile industry by announcing a slew of measures to reverse slowdown denting the sector.

At present, the sector has been impacted by a consumption slowdown which is a culmination of several factors such as high GST rates, farm distress, stagnant wages and liquidity constraints.

Besides, inventory pile-up at the dealership level and stock management of unsold BS-IV vehicles have become a problem for the sector.

• Finance Minister Nirmala Sitharaman allowed government departments to purchase new vehicles to replace old ones. 
• All vehicles purchased till March 31, 2020 shall avail of the benefit of additional depreciation of 15 per cent. It shall increase the higher depreciation on all vehicles to 30 per cent.
• The FM said that BS IV vehicles purchased till March 31, 2020 shall remain operational for the entire period of their registration.
• Registration for both ICE and EV vehicles will continue.

The auto industry hailed the central government's move to give a major boost to the sector.

According to Society of Indian Automobile Manufacturers (SIAM) President Rajan Wadhera said the removal of ban on purchase of vehicles by government department and 15 per cent higher depreciation for all types of vehicles purchased before March 30, 2020 should also give a definite boost to vehicle demand in the short term, especially vehicles meant for commercial use. 

Mahindra Group Chairman Anand Mahindra in a series of tweets praised the slew of measures. He tweeted: "I applaud the methodical approach of 'bucketing' key drivers of the economy&administering a healthy dose of 1st-aid to each. I'm naturally enthused that the Auto industry was recognised as a major growth generator & given a bucket of its own." 

Leading automobile manufacturer Hyundai Motor India MD & CEO S.S. Kim said: "We are optimistic that this move will boost the customer sentiment in the current market scenario and encourage customers acquisition of car in the coming festival season." 

Jaguar Land Rover India President & MD Rohit Suri said: "While the increased depreciation from 15 per cent to 30 per cent and deferment of increased registration fees till June 2020 will have a positive impact, moderation of GST base rate from 28 per cent to 18 per cent for all categories as being requested by the auto industry for sometime now would have been the real demand stimulant."

Volvo Car India's Managing Director Charles Frump said: "Today's announcements by the government will rejuvenate the economy through flow of credit and revival of consumption."

"The decision to allow a higher depreciation on cars, interest rate cuts and BS4 vehicles to run their life of registration will boost demand for the industry. The speed with which the government has responded after meeting various representatives of the industry is also highly appreciable."

Friday's measures come after the automobile sector's representatives met Finance Minister Sitharaman to apprise her of the grim situation.

Recently, all major OEMs consisting of passenger, commercial, two and three wheeler manufacturers have reported a massive decline in domestic sales.

Figures from the Society of Indian Automobile Manufacturers (SIAM) showed that industry which has recorded an overall decline of 18.71 per cent in off-take for July, the highest monthly sales de-growth in the last 19 years.

As per SIAM figures, domestic passenger car sales in July plunged by 35.95 per cent to 122,956 units against 191,979 units sold in July 2018.

Overall, passenger vehicle sales declined 30.98 per cent in July to 2,00,790 units against 2,90,931 units in the year-ago month. In the commercial vehicle segment, sales were down by 25.71 per cent to 56,866 units.

In case of two-wheelers, which include scooters, motorcycles and mopeds, the sale edged lower by 16.82 per cent to 15,11,692 units.