In a fiscally challenging year, the Centre will assess the potential revenue foregone from any reduction in GST rates for four- and two-wheelers from the current 28 per cent, before proposing a cut. Four- and two-wheelers for commercial or personal use — except electric and clean energy vehicles, vehicles for the disabled, bicycles, rickshaws, etc. — are in the 28 per cent GST bracket.
With sales of cars, tractors, and two-wheelers declining to 19-year low, reports suggest 300 dealerships have been shut down. The Society of Indian Automobile Manufacturers says about 1 million jobs have been hit in the auto component industry. Last week in a meeting with Sitharaman, the industry had raised an alarm, saying that without any steps by the government, there would be further job cuts.
Among the primary demands of the industry was a reduction in the GST rate from 28 per cent to 18 per cent, asking non-banking financial corporations to increase liquidity in the market, and relaxing lending criteria for auto dealers. “In the light of the slowdown, banks had become overcautious about lending to dealers, which has caused a tremendous hardship. We asked the government to relax the terms and conditions,” said Saharsh Damani, CEO of the Federation of Automobile Dealers Association.
In order to reduce its exposure to an ailing automotive industry, State Bank of India has decided to halt lending to dealers of Hyundai Motor India unless they provide a minimum of 25 per cent collateral. Dealers who have got loans from the bank will have to provide security of between 25 per cent and 50 per cent of the loan amount. If the Centre does tell state-owned banks to ease credit to dealerships, such moves will be rolled back.
With regard to foreign portfolio investors (FPIs) that are structured as trusts or associations of persons and hence are affected by the super-rich surcharge, the government is considering exempting or ring-fencing them. Though no changes were made in the Finance Bill in this regard, and the Finance Act is unlikely to be amended in the middle of the year, the ministry is understood to have sought the law ministry’s inputs.
If FPIs cannot be exempt from the surcharge, alternatives being examined include reducing the impact of the tax by grandfathering income generated by FPIs for a few months, which will reduce the impact of the tax, or not taxing FPIs on their move from trust structure to company structure.
(With inputs by Arindam Majumder)