Reviving demand: GST relief likely for stressed auto sector

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September 5, 2020 6:45 AM

The GST rate on automobile products is 28% and with the various cesses it goes up even further. The industry has been demanding a 10% cut to revive demand.

The GST Council is likely to deliberate on the matter later this month with regard to reducing GST on two-wheelers. The GST Council is likely to deliberate on the matter later this month with regard to reducing GST on two-wheelers. (Representative image)

Union minister Prakash Javadekar on Friday kindled some hope among auto majors by saying that the government is examining their demand for a reduction in GST rates by 10% across all categories of vehicles, and a decision to this effect would be taken shortly.

Javadekar’s statement comes after finance minister Nirmala Sitharaman said last month that there’s a case for reduction of GST rate on two-wheelers as it is neither a sin good, nor luxury.

The GST Council is likely to deliberate on the matter later this month with regard to reducing GST on two-wheelers. The GST rate on automobile products is 28% and with the various cesses it goes up even further. The industry has been demanding a 10% cut to revive demand.

Speaking at the 60th annual convention of Society of Indian Automobile Manufacturers (Siam), Javadekar, minister for heavy industries and public enterprises, said he will discuss the industry’s suggestion with the Prime Minister and the finance minister. “Details of the proposal are being worked out by the FM. For two-wheelers, three-wheelers, public transport and four-wheelers, relief should come in that order. Hope you will get good news very soon,” he said.

Javadekar also assured the industry that the government would soon announce a scrappage policy – another key demand of the industry to revive sales.

Overall auto sales in the first five months of the current fiscal is down 50% compared with the same period last year.

Speaking at the event, Kenichi Ayukawa, managing director, Maruti Suzuki India, thanked Javadekar for assuring the industry for taking its demand to the PM and FM. He pointed out that the auto sector has been “set back by many years” by a combination of the novel coronavirus pandemic and the slowdown that has been going on since the last fiscal. “In August we can say we just came back on our feet to achieve performance comparable to last year. Also, last year is not a good comparison as the industry saw negative growth of 15-25%. This negative growth has set back the industry by many years,” Ayukawa said.

He further said the growth witnessed in the last couple of months is on a very low base of last year and “we are also not sure whether this is sustainable in future”, while festival demand is very important. “So, at some point of time, we definitely need some support from the government,” he said, adding that the industry is waiting for a government decision to encourage demand.

On his part, Uday Kotak, MD and CEO of Kotak Mahindra Bank, and CII president, urged the government to address supply-side bottlenecks being faced by the auto industry amid the pandemic.

“At this time, I don’t see any issue of availability of money, which is available in plenty. Banks are ready to lend for vehicles if there is a demand for that. So at this stage, I don’t see there is any issue either on the rate of interest or the availability of money (for vehicle finance),” he said.

Kotak further said the banks are “ready, willing and eager to (finance), what we need to ensure is proper consumers with a reasonable credit history”.

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