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

Speaking at the annual convention of Society of Indian Automobile Manufacturers (Siam) on Friday, Ayukawa said while auto makers may have reported year-on-year improvement in factory dispatches for August, the situation remains grim given vehicle sales, across categories, had declined by up to 25% last fiscal.

Sales this fiscal will likely fall 25-45%, across segments, due to the economic slowdown exacerbated by the pandemic, Siam has forecast.

Automobile sales had begun falling in the second half of FY19 when the criss in non-banking financial companies unravelled in the aftermath of bankruptcy at the IL&FS.

Automakers like Maruti Suzuki and others have also been struggling to ramp up production given the disruption in supply chain network following the coronavirus pandemic, that emerged last year in China, ensuing lockdowns in India and world over, and most recently increased inspection of imported parts from China following tensions along the border.

"...it is important for us to maximise production and sales volume. This will help to protect livelyhoods and also keep government revenues healthy to fund welfare initiatives," added Ayukawa. "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 on GST rate reduction."

Aided by a quick recovery in demand for entry-level cars, hatchbacks, and utility vehicles, Maruti Suzuki reported a 21.7% year-on-year growth in domestic wholesales to 1,15,325 units in August. Factory dispatches also improved from July when the company sold 100,000 units and 51,274 units in June. Maruti resumed operations at its Manesar based plant from 12 May.

The country’s largest car maker reported an unprecedented net loss of ₹249.9 crore for quarter ended June, the result of significant decline in sales due to the lockdown.

“We are currently constrained by supply chain issues due to health and safety related concerns. The growth we have seen in August, this is a on a low base of last year when vehicle sales decline by 18%. We are also not sure whether this demand is sustainable in the future. At some point of time we will definitely need support from the government," added Ayukawa.

India’s minister for Heavy Industries, Prakash Javadekar, said the government may not be able to immediately take a decision on reducing GST but is working on a plan to incentivise companies that exports goods from India.

“The government wants industries to reduce their reliance on imports and focus more on exporting items from the India. The union government has already identified some sectors and companies will be incentivized based on amount of goods they export. We are already working on the details of this scheme," Javadekar said.