Auto Sector Seeks Immediate Government Action To Revive Growth

Reduction in goods and service tax rate, liquidity crunch and scrappage policy were among the many issues the automobile industry raised at a meeting with the finance minister today.

India’s auto sector is grappling with its worst slowdown in more than a decade. Retail auto sales fell for the eighth straight month during the seasonally weak monsoon period as buyers stayed away amid tight financing.

The meeting was attended by as many as 21 representatives of the automobile industry, including Maruti Suzuki India Ltd., Hyundai Motor India Ltd., Honda Motor Co. and Toyota Motor Corp., and dealers and components manufacturers.

The auto sector has sought the government’s support for availability of finance to customers as non-bank lenders had reduced lending significantly after a series of defaults by IL&FS group companies. Even banks are now looking to propose higher collateral while lending to dealers, and are reticent to fill the void amid the slowdown scare.

“We have requested the government that the banking and finance confidence to be restored from the liquidity standpoint, both for dealer and consumer lending,” Ashish Harsharaj Kale, president of Federation of Automobile Dealers Associations, told BloombergQuint, adding that the body has asked the ministry to confer with the banking industry and ensure “aggression in retail loans”.

“The situation is quite serious,” he said. “The industry doesn’t have enough time.”

Ram Venkatramani, president of Automotive Component Manufacturers Association of India, said that a new scrappage policy, and lowering of GST on auto components to 18 percent was also discussed. Kale said the government is expected to get back to the representatives in a week.

Recently, the Ministry of Road Transport & Highways, had proposed a draft policy, exempting buyers from paying registration fees for new vehicles if they present a scrapping certificate. The industry, however, said incentives aren’t enough for the consumers to scrap vehicles.

Auto demand in Asia’s third-largest economy has been falling since the Diwali festive season last year, forcing automakers to lay off contract workers and shut showrooms, as BloombergQuint had reported earlier.

Rajan Wadhera, president of Society of Indian Automobile Manufacturers, said the government has committed to take steps to revive demand and growth. “The government is looking into cutting of GST rates.”