Finance Minister Announces Measures To Boost Automobile Sector

The government announced measures to help the industry recover from the worst slowdown in a decade.

Finance Minister Nirmala Sitharaman on Friday evening, among other things, provided clarity on vehicles to be sold before stricter emission standards kick in and promised a scrappage. She also lifted the freeze on government departments, urging them to “go buy” new vehicles. The incentives announced include:

• Bharat Stage-IV emission standards-compliant vehicles purchased till March 2020 will remain operational for the entire period of its registration.
• Revision of one-time registration fee to be deferred till June 2020.
• A new scrappage policy will be introduced soon.
• Ban on purchase of new vehicles by government departments lifted.
• Increase in depreciation on vehicles to 30 percent from 15 percent, if the vehicle acquired is during the period till March 2020, to ease stress around piled up inventory.

“They have done what’s possible. Heartening that the Finance Ministry heard the auto industry and responded so quickly,” RC Bhargava, chairman at Maruti Suzuki India Ltd., told BloombergQuint in an interaction. The sentiment for buying automobiles is very critical and the minister made it clear that fossil-fuel driven vehicles vehicles aren’t going away in the near future, he said.

“Long-term financing costs have been brought down by linking loans to repo rates,” Bhargava said. A scrappage policy announcement will help improve sentiment, he said, adding that he hoped for states to roll back recent increases in road taxes.

According to Vikram Kirloskar, vice Chairman of Toyota Kirloskar Motor, there are a couple of issues affecting car sales. “Mr Bhargava has mentioned how the costs have gone up. GST is one issue, but taxes on the road, the registration and insurance fees have also made the basic cost of the car go up,” he said. “Secondly, the time taken to get a loan has taken a toll on car sales and a lot of this is done on retail finance.”

Others are more cautious.

While the measures will go a long way in improving sentiment but there is not much for reducing transaction costs, said Pawan Goenka, managing director at Mahindra & Mahindra Ltd. The scrappage policy will be a big boost and the Finance Minister has removed some of the unfounded fears on BS-IV vehicle registration,” he said, adding that she promised “more to come.” “We will wait and see.”

Passenger vehicle sales dropped the most in nearly two decades in July, and contracted for the ninth straight month. The automobile industry had sought a lower goods and services tax rate, among other things, to pull it out of the prolonged slowdown. But they didn’t get that relief.

Puneet Anand, group marketing head at Hyundai Motor India Ltd., said the incentives announced are a good interim measure, and will augur well for the industry which is now preparing for the festive season. “While this will soften the market and will build the momentum, but more needs to be done.”

Agreed Vinkesh Gulati, vice president of Federation of Automobile Dealers’ Association. “The Incentives will boost the confidence of the industry and will less likely convert into sales,” he told BloombergQuint over the phone. Besides increase in depreciation rate, there is nothing much for the industry, and especially nothing for individual buyers, he said. “This would only boost the sales by just 3-4 percent.”