Taxes beating down sales of even low-end vehicles, the ramifications of continued auto-sector pain on jobs are serious
Maruti Suzuki chairman RC Bhargava’s contention the government doesn’t do enough to support the automobile sector—probably because cars are perceived to be for the rich—is not off the mark. Obviously, a very large section of the population can’t afford cars or, for that matter, two-wheelers. But the contribution of the auto sector to the economy should not be under-estimated given it generates jobs and employment opportunities in large numbers. Indeed, the relatively high GST rates on autos are not justified because it puts a scooter or even a low-end motorcycle out of reach of ordinary middle-class households.
Over the last two years, technology and regulatory upgrades have pushed up the price of vehicles by a steep 25-30%, or even more in some instances. So, Bhargava and fellow automaker TVS Motor chairman Venu Srinivasan do have a point when they say the government is not walking the talk when it comes to assisting the auto industry get back on track and that no concrete action has been taken. Bhargava’s remark, “I am afraid words don’t get us very much in terms of extra sales,” is spot on. The government—the Centre and the states—should heed this demand because a cut in GST rates could rejuvenate demand ahead of the festive season, boosting sales. The higher volumes would at least partly compensate for the lower levies. The share of the auto sector is roughly 15% of the total GST collections.
The state governments, too, should realise that even low-end vehicles are now out of reach of the common man, and the stratospheric high prices of petrol and diesel are making it worse. It is critical to make products a lot more affordable; levying the same GST rates for two-wheelers and high-end cars is irrational. The current GST levy for cars, two-wheelers and trucks is 28%, but after other taxes, the total incidence, in some cases, is around 40%.
It is not surprising that retail sales volumes of two-wheelers fell 32% in FY21 and were the worst in about a decade; between July 2020 and March 2021, volumes increased only in one month. Again, retail volumes for passenger vehicles saw a fall of 14% in FY21. To be sure, FY21 was a year of disruption, but there is no denying high prices slowed down purchases. The trend in the current year so far appears encouraging only because of the base effect.
For sure, the rebate should be restricted to vehicles below a certain price level; those that can afford to pick up vehicles that cost `20 lakh can afford to pay the GST. As it is, the industry hasn’t been given enough of a heads up on transitioning to an EV regime; expecting companies to make big investments in their plants and then springing a nasty surprise is not fair. It is nobody’s case that the environment should not be protected, but, right now, the only priority for any government should be to protect and create jobs. Revenue secretary Tarun Bajaj’s query on whether the tax rates prevailing pre-GST were lower or higher is not really pertinent in the current environment when the economy is reeling from the pandemic. The point is the high levies are stymieing sales and the government must cut them, even if it for a temporary period, say, a year.