GST cut, scrappage policy needed to revive Indian auto sector: Maruti’s Ayukawa

India’s automobile industry needs government support through a cut in vehicle taxes to make them more affordable and an incentive-linked scrappage policy to help revive consumer sentiment and sales in a coronavirus-hit market, said Kenichi Ayukawa, managing director and chief executive officer, Maruti Suzuki India Ltd.

The government will be able to offset revenue loss from a reduction in the goods and services tax (GST) on automobiles through increased vehicle sales as companies pass on the tax benefits to consumers, Ayukawa said on Friday at the annual convention of the Society of Indian Automobile Manufacturers (Siam).

Domestic passenger vehicle sales in August grew compared to last year, but this is not significant as the increase came off the low base of the last fiscal when sales had declined 15-25% across categories, he said.

“We understand that if the government wants to do good for the country, it needs funds. Government revenues come from the taxes on the gross domestic product (GDP) that we generate. So, it is important for us to maximize production and sales volume. This will help protect livelihoods and also keep government revenues healthy to fund welfare initiatives,” Ayukawa said.

“We will eagerly wait for the GST reduction and scrappage scheme. We believe that the taxes on the increased turnover will be more than the government’s expenditure on this scrappage scheme or (the revenue loss from the) GST rate reduction,” he said.

Automobile sales in India have been on the downtrend since the second half of FY19 when the bankruptcy of Infrastructure Leasing and Financial Services caused a liquidity crisis among non-banking financial companies who are some of the major lenders to the auto industry. Higher fuel prices, weak consumer sentiment in a slowing economy and an increase in vehicle prices to meet new government rules on safety and emissions led to the decline in annual car sales in FY20.

Siam has forecast vehicle sales across categories to decline 25%-45% this fiscal. Passenger vehicles sales fell 62.73% year-on-year (y-o-y) from April to July to 336,513 units with car sales falling 67.6% and sport-utility vehicles recording a 51.41% drop.

“We are currently constrained by supply chain issues that arise out of health concerns. The growth we have seen in August is on a low base of last year when vehicle sales declined by 18%. We are also not sure whether this demand is sustainable. At some point of time, we will definitely need support from the government,” Ayukawa said.

The government may not be able to immediately take a decision on lowering GST, but it is working on a plan to incentivize companies that export goods from India, heavy industries minister Prakash Javadekar said at the Siam convention. “The Union government has already identified some sectors and companies will be incentivized on the basis of the amount of goods they export. We are already working on the details of this scheme,” he said.

Siam also named Ayukawa as its president for the next two years. He will take over from Rajan Wadhera, former president of the automotive business of Mahindra and Mahindra Ltd.