Covid-19 impact: Govt looking at GST rate cut for automobile sector

The government is likely to include auto components under the production linked incentive (PLI) scheme and evaluate local content and bring in value addition to automobile companies.
The Centre on Friday assured support to leaders of the auto industry which has been severely hit by the pandemic. At the 60th annual conclave of the Society of Indian Automobile Manufacturers (Siam), Union Cabinet ministers including Nitin Gadkari, Piyush Goyal and Prakash Javadekar listed out a series of possible measures such as a scrappage incentive scheme and reduction in the goods and services tax (GST) rate to revive the auto sector.

“The demand push has to be done immediately. The GST Council will have to take into account the revenue impact and other factors. I hope you get some good news very soon,” Prakash Javadekar, Union Minister of Heavy Industries and Public Enterprises, told captains of the industry at the virtual meet. He indicated the Council would consider the industry demand of 10 per cent GST cut across categories of vehicles. The GST slabs range from 5 to 28 per cent in the sector depending on the type of vehicle.   

His comments came after Rajan Wadhera, president, Siam, made a strong pitch for incentives that could boost demand ahead of the festive season. India’s auto sales,  which used to be the fifth largest till FY19, have slid back to almost a decade ago due to a combination of factors including an over dose of regulations, a slowing economy, liquidity issues and now the pandemic, Wadhera said.

The Street reacted positively to the assurance by the ministers. On a day when the broader Sensex dropped by 1.66 per cent, the auto index declined by only 0.61 per cent.

India sold 2.7 million cars and utility vehicles in fiscal 2019-20. That’s almost  at the level of fiscal 2011 when it sold 2.5 million units.

“The Indian auto industry is facing one of the toughest times in history and needs government support through reduction of GST and incentive-based scrappage policy,” Maruti Suzuki India Managing Director and CEO Kenichi Ayukawa said.

Ayukawa, the president-elect of auto industry body SIAM, said the sector had been “set back by many years’’. The growth witnessed in the last couple of months is on a very low base of last year and the industry is not sure whether this is sustainable in future.
Among other steps, the government is likely to include auto components under the production linked incentive (PLI) scheme. For large units, the scheme proposes  financial incentives to boost domestic manufacturing and attract large investments.

“It will be a good idea to include auto components under the PLI scheme. This will boost local manufacturing,” said commerce and industry minister Piyush Goyal while promising to reduce imports in the automobile industry and increase localisation.

Goyal also said the government was working to sign favourable trade agreements which would allow Indian auto companies to increase export in Europe.

This was after industry executives said unfavourable Free Trade Agreements (FTA) were "playing havoc" on the competitiveness of India's automobiles and component exports’. They suggested that the government must fix it on priority  while negotiating trade agreements. “Talks in these regards have already started with Indonesia and Australia,” Goyal said. Indian auto manufacturers are heavily dependent on China for crucial products in the manufacturing value chain. In 2018-19, India imported auto components worth $17.6 billion, of which 27 per cent ($4.75 billion) were from China.

The major component imports from China include drive transmission and steering parts, electronic and electrical items, cooling systems, suspension and braking parts.

Mahindra & Mahindra Managing Director Pawan Goenka, who heads the steering committee for advancing local value addition, said Indian auto manufactures were looking at halving imports in the next four to five years in line with the government’s vision for an ‘Atmanirbhar Bharat’.

“India imports components valued at Rs 1 lakh crore (trillion). We want to bring this down by 50 per cent in the next four to five years by eliminating gaps in competitiveness, costs, technology and quality,” Goenka said.

However industry executives said the government’s recent move to cap export benefits under Merchandise Export from India Scheme (MEIS) at Rs 2 crore for every exporter would hurt the industry as most companies were exporters of high value items. “We have not made a calculation yet but this move is going to impact us heavily,” said Wadhera.

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