A blessing for ailing auto industry

Written by Yogima Seth | New Delhi | Updated: May 18 2009, 05:52am hrs
The Congress-led UPAs second term at the Centre might come as a blessing to the ailing auto industry, feel experts and analysts.

In its last tenure, UPA government had initiated some efforts to help boost demand in the sector. Now with the same government getting another five years in office, it is expected that they will deliver on their promise of investment in infrastructure and flexible labour laws. This will eventually boost demand for commercial vehicles and reduce the problem of labour unrest that had in the past restricted the growth of the sector, says Abdul Majeed, analyst and partner, PriceWaterhouse.

According to Vishnu Mathur, executive director, Automotive Component Manufacturers Association (Acma), it is stable government policies and a strong economic agenda that will help revive the auto component sector in India. Government had undertaken some fiscal and monetary measures, major being reduction in excise duty and interest rates, in two stimulus packages announced in December 2008 and January this year. Despite this, the commercial vehicles continue to post around 40% dip in sales which means that the auto component players supplying to commercial vehicles have still not seen an end to recession and therefore the sector needs concrete economic agenda from this government if it wants Indian auto component sector to remain competitive vis--vis other countries, he says.

As per estimates by Acma, the domestic auto component industry would have grown by 0-2% in 2008-09 from $14.4 billion turnover in 2007-08.

Exports, however, are estimated to register a decline of 1-2% from $3.6 billion revenue in 2007-08.

According to the Society of Indian Automobile Manufacturers (Siam), Centre should rationalise tax structure, give incentives for conversion to cleaner technologies and alternative fuel like CNG and LPG and make provisions for income tax rebate on auto loans.

While basic excise duty, special excise duty, automobile cess, NCCD, and education cess should be merged into a single rate of excise duty, secondary and higher education cess of 1% should be merged in the existing education cess of 2%. Moreover, the excise duty on LPG/ CNG, hybrid and other alternative fuel vehicles should be reduced and a deduction similar to housing loan should be granted for the car loans as this will lead to a growth in the passenger car segment and will generate higher revenue to the government in terms of excise duty and sales tax, it says.

Domestic passenger car sales grew by a mere 1.3% in 2008-09 at 12,19,473 units as compared to 12,03,733 units in 2007-08 as against earlier projections of 10-12% growth because of high interest rates and severe liquidity crunch in the second half of 2008.

According to a Mumbai-based analyst, the government might do away with additional levy of Rs 15,000 on cars above 1500cc and Rs 20,000 on cars above 2000cc, considering that the ministry of heavy industries has already made a proposal for the same.