With 32 million jobs at stake in India’s auto sector, the Modi government may ease tax burden on cars

• The sharp slump in car sales has squeezed profits in India’s auto sector, which employs 32 million people.
  
• Half a million passenger vehicles worth $5 billion, are lying unsold at dealerships.
  
• The automobile sector currently attracts 28% GST slab.
  
• Seven of the top ten auto manufacturers like Maruti Suzuki, Tata Motors and Mahindra have announced factory shutdowns.
  

The newly appointed Finance Minister Nirmala Sitharaman is mulling taking a few items off the list which attracts the highest tax under India’s goods and services tax (GST) regime. And, auto sector, which has been weighed down by piling inventory and sales slowdown, is most likely candidate, according to an ET report.


Currently, the automobile sector attracts 28% GST along with personal-use aircrafts, lotteries and five-star hotels and unhealthy foods like aerated water.


The sector employs around 32 million people across the country, directly or indirectly, and has been the single-greatest engine of economic growth across the world. Any benefits that flow into the sector, trickles down to every sector. As the government looks to create employment, this sector which is capable of moving the growth engine, is seen as a favourite.

Right now, the sector is facing shutdowns after a long spell of slowdown. This will have a much deeper effect on the employment in the sector which employs skilled and unskilled workers. As per the latest data, hiring in the sector went down by 2.5% in 2017-18 annual data.

Unsold inventory at $5 bn

According to an ET report, seven of the top ten auto manufacturers like Maruti Suzuki, Tata Motors and Mahindra have announced factory shutdowns. Almost half a million passenger vehicles worth $5 billion, are lying unsold at dealerships.

As many as 3 million two-wheelers valued at $2.5 billion are unsold too. Auto dealers too have been shuttering down as they are unable to move cars from the showrooms.

In the slow lane

For the month of April, the Indian auto sales declined by almost 16% annually, according to the Society of Indian Automobile Manufacturers (SIAM). All the segments like commercial and passenger vehicles, two wheelers moved to the red. The wholesale passenger vehicle sales segment went down by 17%, impacted by various factors.

“Passenger vehicles sales volume declined due to the weak buyer sentiments on account of higher insurance premiums, the increase in fuel prices as well as the interest costs. Sales were also impacted by various regulatory changes in the industry such as BS-VI, FAME-II as well as alternate mobility. The lack of clarity on the policy front could lead to uncertainty in the demand pattern in 2019-20,” said a report by India Ratings on April sales volume.

Little room for a cut

The central government led by Narendra Modi, has to walk a tightrope this Budget. The country is on the verge of a slowdown as GDP growth is all set to be lower than the expected 7%. At the same time, their ability to provide sops is also low as tax collections have come in slowed down.

The government tax receipts this year are 5% lower than what they were last year, throwing government into cost savings mode.

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