After witnessing a massive challenge in 2019, the auto industry is expected to close with a drop in wholesale dispatches of nearly 12 per cent to 14 per cent in 2019 vis-à-vis 2018. On one hand of the spectrum, passenger vehicles and two-wheelers will decline by 12 per cent to 14 per cent. On the other hand, commercial vehicles will also go down by 15 per cent to 17 per cent overall, while heavy vehicles will decline by around 40 per cent.
Many companies are facing operational problems due to this major drop and production plans have been revaluated through the year to fulfill the needs. During this festive season, some improvement in consumer sentiment was observed by the automobile industry. However, it has failed to recover from demand reduction.
Ina bid to bring the industry out of the slowdown, the government has come up with a few measures, including a reduction policy in the corporate tax rate to 22 per cent, pumping of liquidity to boost the economy and increase in depreciation rate by 15 per cent for vehicle purchase.It has also provided assurance that a scrappage policy is in the works, which may bring positive results for the industry in the longer run, says PawanRuia, the Chairman of Ruia Group.
One of the major reasons for restrained growth in the Indian Auto Industry has been low consumer sentiments,which has impacted the demand.Increase in costs due to clubbing of various regulations have also impacted the affordability. Introduction of new regulatory and safety norms has increased the costs of vehicles.
Increase in Axel Load Limit for commercial vehicles by up to 25 per cent was damaging for new commercial vehicle sales, expanding freight capacity leading to decline of new vehicle demand.
Apart from this, NBFCs (Non-Banking Finance Company) have been primarily lending customers in semi-urban and rural areas where credit availability from the banking sector is usually difficult. Sales of vehicles has been facilitated by easy credit to the consumers over the years. However, the credit crunch that has now hit the auto sector is leading to a decline in automotive loan disbursals.
It is important that the benefits of this move are delivered to the consumers by the banks and financial institutions, though the government has announced infusion of liquidity into the economy. Slowdown has led to the instant concern of inventory clearance of BS IV vehicles, along with the hard stop for BS IV vehicle registration until 31st March 2020.
The manufacturers are providing various incentives and offers to induce demand in the market, a move that has helped to spur demand to some extent during the festive month but that is clearly not enough. A policy for incentive-based vehicle scrappage policy for vehicles registered from 1st April 1995 to 31st March 2005 can act as a key intervention that can support demand generation.
For removing old vehicles from the road, the government has been discussing a scrappage policy. SIAM has proposed that Government announces an incentive-based vehicle scrappage policy for removal of the old and polluting vehicles, registered between 1st April 1995 and 31st March 2005, from the Indian roads.
To make income tax leviable on the real-life of vehicles, SIAM has also proposed the government to permanently increase depreciation rate for passenger vehicles and two-wheelers to 25 per cent.
The Government should make a significant budget allocation to the Ministry of Urban Development to support State Transport Undertakings in acquiring buses with other fuels like CNG, Diesel, Biofuel etc. This would also lead to stimulating demand for Commercial vehicles which is very much needed in the current economic situation.