The stakeholders in the auto industry unanimously have requested the Government to cut down the rates of GST to 18%. The president of the Society of Indian Automobile Manufacturers (SIAM), Rajan Wadhera said in a statement that there is a major requirement to lower the rates of the GST to 18% from 28%.
In an official statement, he said – “Need for an immediate reduction in the GST rates has been agreed unanimously by all automobile manufacturers, including the two-wheeler OEMs. This was also reiterated at a recent meeting with the finance minister where all OEMs (original equipment manufacturers) participated”. Two-wheeler brands like the Hero MotorCorp have also nodded upon the idea.
There have been a number of reasons for this slowdown. First of all, the slump in our income growth and Non-Banking Financial Companies (NBFC) crisis is the reason. It is unlike the other cycles that happened due to the global crisis. Secondly, cost pressure has been witnessed as over the FY19-21, there will be a hike in prices from 13-30 per cent which will be due to safety, insurance and emission-related costs. From April 2020, India will upgrade to BS-VI from BS-IV which will also constitute in a price increase.
There has been an expansion in the size of the pre-owned market which as a result impacts the demand for new vehicles especially when there is a hike in prices going on. Also, the drop in the current cycle in gross and earnings before interest depreciation, and amortization (EBITDA) margins is huge. It’s the first time that the decline in EBITDA is higher than gross margin.
The auto industry is going through an unparalleled crisis which has caused a steep drop in sales over months now. Dealerships across the country have been closed, huge manpower has already been slashed, also the production of vehicles has also been decreased as there is a huge drop in the demand. On the contrary, the Finance Ministry said officially that the GST rate is already below expectations and a further reduction can complicate the situation.
