Auto Industry Needs Strong Government Interventions: SIAM

Auto Industry Needs Strong Government Interventions: SIAM

July 2020 Interaction Auto Industry Needs Strong Government Interventions SIAM
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The auto industry is going through a period of severe stress owing to the outbreak of COVID-19, and here is SIAM’s view of the current situation

Auto Tech Review caught up with Rajan Wadhera, President, Society of Indian Automobile Manufacturers (SIAM), to understand what lies ahead for the industry amidst these unprecedented times.

CHALLENGING TIMES

The industry has been bogged down by a prolonged slowdown since the latter part of 2018, and it has been further exacerbated by the outbreak of COVID-19 – it registered a de-growth of 18 % last year, which can be attributed to vehicle prices going up, wait-and-wait approach of consumers (as the industry moved from BS 4 to BS 6) and the GDP not growing on expected lines, observed Wadhera. Painting an exceedingly grim picture for the industry, Wadhera said the GDP as per various forecasts will witness de-growth of 2-3 %, which effectively means that the industry would de-grow in the range of 26-45 % across vehicle segments.

The industry will witness a de-growth of around 50 % in two years (2019 and 2020), which will push it back by a decade to the lows of 2008-2009. And to address this de-growth, Wadhera said the need of the hour is to reduce GST on automobiles from 28 % to 18 %. The de-growth will be exceedingly damaging because the industry over the years has built infrastructure, investments, manpower and capacities to walk down a consistent growth path. Of course, discretionary spending will take a hit owing to the COVID-19 situation as there will be a huge correction in volumes, and the industry will witness job losses as well as salary cuts, while loan availability will not be easy, he pointed out. Wadhera thinks the returning of migrant workers to their native places is not a concern since most companies are operating in one shift with 20-30 % capacity utilisation.

GOVERNMENT STIMULUS

Globally, governments in Europe and China have come up with measures to bail out the auto industry, in terms of boosting consumer sentiments. China rolled out discretionary vouchers as high as $ 1,000 to every car to boost car sales. Such measures must be initiated in India as well, said Wadhera. The government must see it as their responsibility to improve consumer sentiments and appear to focus on activities that will improve GDP growth. The government, probably, does not see GST reduction as their role, he noted.

The significance of the auto sector to the country’s economy should not be lost on anyone – the sector employs over 3.7 cr people and contributes to 15 % of the country’s GST collection amounting to Rs 1.50 lakh crore every year. The government must understand that the auto sector’s GST collection will be only Rs 75,000 crore instead of Rs 1.50 lakh crore if the industry de-grows 50 %, he pointed out.

MADE-IN-INDIA FOCUS

Moving away from the industry’s growth concerns, Wadhera also threw light on how the country lost out on an opportunity to accelerate its ‘Make in India’ focus in its tearing hurry to move to BS 6 in a time span of three years. It may be mentioned that the industry injected substantial investments in migrating from BS 4 to BS 6 emission norms (OEMs collectively infused close to Rs 50,000 crore of investments).

The timeline of April 1, 2020 to move from BS 4 to BS 6 necessitated the need to develop a lot of proprietary technology in India. India had no option but to take the import route as these technology components were already developed in Europe and China. Ideally, the country could have developed such technologies with its suppliers in India, if the auto industry was allocated adequate time for the same, said Wadhera, calling spade a spade. The fallout of that move is that the supply chain is not in India, but in China and Europe. Of course, there are challenges in localising the supply chain as the industry did not have volumes for investments that are needed to produce those huge technology parts, he explained.

Wadhera also opened up on how the axle load norms broke the back of the medium and heavy commercial vehicles. According to the industry veteran, there was no logic to bring the axle load norms, as increasing 25 % load capacity on a truck suddenly led to a 25 % overcapacity in the country. This norm created a situation, where every fleet owner had surplus vehicles, and that triggered a freight war among fleet owners as they started dropping prices with trucks idling, he observed.

The SIAM President reckons that there will be a strong consumer preference for personal mobility as people who hitherto used local trains, metro rail or other modes of public transportation for daily commuting, may buy a small car or a motorcycle/scooter to move around, so that social distancing norms are met. The COVID-19 situation will spur demand for e-commerce, which means two- and three-wheelers will witness high sales, as people are increasingly looking to order online. The revival of the CV industry will depend on how the government accelerates its infrastructure spending, remarked Wadhera.

ROUND-UP

The industry is hopeful that the government would come out with much-needed interventions such as slashing GST on automobiles among others and undertake efforts to make vehicles more affordable – essentially create demand triggers in the market, concluded the SIAM President.

TEXT: Suhrid Barua