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Automobile sector: Nirmala Sitharaman doesn’t announce any GST cut but steps to boost demand

FE Bureau

The auto sector, which is battling a slowdown and has been asking for a stimulus, was also granted several relief measures to boost demand. However, the industry's chief demand for a cut in GST has not been met.

Industry veterans, like Maruti Suzuki chairman RC Bhargava and Mahindra & Mahindra managing director Pawan Goenka, said that the measures would lift consumer sentiments and incentivise vehicle purchase.

Among the measures announced by the finance minister, the chief one for institutional buyers, corporates and businesses, is the enhanced depreciation cost. An additional 15% depreciation will be provided on vehicles acquired from now till March 2020, taking the total depreciation to 30%.

Reassuring the general consumers, the FM announced that all BS-IV vehicles purchased up to March 2020 will remain operational for their entire period of registration. Since BS-VI norms come into effect from April 1, 2020 there were apprehensions that BS-IV vehicles will have to go off roads after that, thus restraining consumers to buy such vehicles at present.
Another consumer-friendly measure which keeps in check vehicle ownership cost is that the proposal to increase the one-time registration fee has been deferred until June 2020. The automobile industry had argued that an increase in vehicle registration fee would further hurt demand.

The FM also assured consumers that in future, internal combustion engine vehicles would continue to be registered along with electric vehicles. This was also a kind of reassurance since in the Budget a slew of measures to promote electric vehicles were announced which had created a perception that ICE vehicles would be phased out.

To boost demand, the FM also announced that the freeze on government departments to replace old vehicles has been lifted, a move which would see government as a major buyer of vehicles. Though, government purchase comprises only a small percentage of overall sales, Maruti’s Bhargava said that the move would certainly lift sentiments.

"Government buying is not a major part of sales but what is important is the change of sentiment this will bring about in the market, because people who thought that government will only buy EVs and ICE engines will be out will now think otherwise," Bhargava said.

The FM also said that the government will consider a scrappage policy, something which the automobile industry has been advocating for, to get old, unfit vehicles off the roads and thus increase the demand for new vehicles. However, the minister said that first a scrapping infrastructure needs to be put in place before such measures are finalised and announced.

"Not much was announced for reducing transaction costs but several other measures will incentivise vehicle purchase and also remove some of the unfounded fears such as BS-IV vehicle registration," M&M’s Goenka said, adding that the scrappage policy will be a big boost.
The auto industry is going through a prolonged slowdown for the past one year and monthly sales in July saw the worst decline in the past two decades.