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Sitharaman's action plan for auto-sector: These measures announced to boost vehicle sales

By Vishal S

New Delhi, Aug 23: With the recent data showing dip in vehicle sales, Finance Minister Nirmala Sitharaman on Friday announced a slew of measures to arrest the slowdown in automotive sector.

In a bid to boost demand in the auto sector, the Finance Minister said that the government will put off a proposal to increase registration fees of vehicles.

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The Finance Minister said that the focus would be to give impetus to the automotive ancillary units. She said that there is no need to fear that since the government is pushing for Electrical Vehicles, there would be curbs on conventional vehicles.

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To dismiss speculations concerning BS-IV vehicles, Sitharaman said that the Bharat Stage IV vehicles purchased before March 2020 will remain operational for the full period of their registration.

"BS-4 vehicles purchased up to March 31, 2020, will all remain operational for their entire period of registration," she said allaying the fears.

Further to boost demand, Nirmala Sitharaman said government departments will be actively pushed to replace old vehicles and provide a source of demand for the auto sector.

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Earlier, there were certain restrictions on government departments to buy new vehicles even if it was to replace old ones.

As per data released by the Society of Indian Automobile Manufacturers (SIAM), vehicle sales across categories, including passenger vehicles (PVs) and two-wheelers, saw a major dip. Sales in terms of numbers stood at 18,25,148 units last month as against 22,45,223 units in July 2018. The previous biggest decline across overall domestic automobile sales was recorded in December 2000 when it fell 21.81%.

Finance Minister major announcements for auto sectors in nutshell:

  • Government would focus on setting up infrastructure for development of automotive ancillary segment. Export of batteries to be encouraged.
  • BS IV vehicles purchased upto 2020 March will remain operational for entire period of registration.
  • Revision of one-time registration fee has been deferred till June 2020.
  • Additional 15% depreciation on all vehicles to increase it to 30% acquired during the period from now till March 31, 2020.
  • Government shall lift the ban on buying new vehicles. New vehicles to be bought by all govt departments
  • The government would put off a proposal to increase registration fees of vehicles.

How did the auto-industry react?

Steps announced by the government on Friday to boost the economy will help the automotive sector significantly in making a turn around quickly as it has been reeling under sales slump for nearly a year, according to industry players.
Finance Minister Nirmala Sitharaman has unveiled a slew of measures to infuse liquidity, enhance transparency, fast track GST refunds for MSMEs, expedite capital availability for infrastructure projects and sustain automotive demand, including a scrappage policy, among others.
While welcoming the overall steps announced, Society of Indian Automobile Manufacturers (SIAM) President Rajan Wadhera said it would await the "next announcement of the finance minister on the GST reduction, post GST council meeting".

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"The industry highly appreciates that the finance minister has responded with a package of measures within two weeks of its consultation with the industry," Wadhera said in a statement. He said affordability and availability of retail finance as well as finance for dealers was a major concern for the industry and Friday's announcement have adequately addressed concerns on both the fronts.
"The overall package of what has been done is going to greatly benefit the economy as a whole because it address the actual operational issues... The auto sector will benefit if the rest of the economy benefits," Maruti Suzuki India Chairman R C Bhargava told PTI. However, he said that while the Centre has taken the lead, states need to follow up, specially from automobile industry point of view and reduce road taxes and registration fees which were recently hiked by some states.
"That along with central government measures will really give a boost and revive the car industry very quickly," Bhargava said, adding that if the state governments also follow, "then it will be very good grounds to be highly optimistic" for a good festive season. Echoing similar sentiments, Mahindra and Mahindra Managing Director Pawan Goenka said, "the announcement today will go a long way in improving sentiments because it shows that the government is listening to the industry".
"I think the financing concerns have been more or less taken care of by the announcements. Not much for reducing transaction cost but several other measures that will incentivise vehicle purchase and also remove some of the unfounded fears such as BS-IV vehicle registration," he said.
Goenka said the scrappage policy would be a big boost and the industry would wait and see.
TVS Motor Co Chairman Venu Srinivasan said these measures will provide the immediate relief that the industry was seeking.
"The promptness of this government's response is reassuring for not just industry, but for the common man as well because it's putting liquidity into the market and easing the squeeze on the small and medium sector," he added.
Welcoming the announcements made by Sitharaman, Tata Motors CEO and MD Guenter Butschek said the measures to improve liquidity, drive growth and reduce cost of ownership of the vehicles, should help the industry get back on track.
"We thank the government for hearing the concerns of the industry empathetically and doing their best under current conditions," he added.
Expressing similar views, Bhargava said,"I think the responsiveness of the finance minister and the kind of attention to details that has been paid by the ministry and the minister is something quite extraordinary. The speed at which they have listened to what was told to them at various meetings is also quite remarkable". Mercedes-Benz India Director and CEO Martin Schwenk said the host of positive measures announced has given the much required boost to the auto sector and also sets a clear road map.
"We are confident that these measures once implemented, will support growth and drive demand for the auto sector," he added. Automobile dealers'body FADA President Ashish Harsharaj Kale said the measures announced by Sitharaman "will definitely uplift customer sentiment for the upcoming festive season and the dealer community has a very positive hope that demand in auto sales would soon pick up and turn positive".
Auto components makers' body ACMA President Ram Venkataramani hoped the measures to improve liquidity and deferring of enhanced vehicle registration cost would revive the ailing sales in the auto sector.
"That apart, enhanced depreciation of 30 per cent until March 2020 will motivate institutional sales of vehicles. Further, removal of ban on purchase of new vehicles by government will also help reduce the current pileup of inventory," he added. He also reiterated the industry's demand for GST cut saying, currently 60 per cent of auto components are at 18 per cent, while the rest are at 28 per cent.
"A lower rate of GST will not only ensure better compliance but also help curb grey operations in the aftermarket," he noted. Similarly, Jaguar Land Rover India President and MD Rohit Suri said while the increased depreciation from 15 per cent to 30 pr cent and deferment of increased registration fees till June 2020 would have a positive impact, moderation of GST base rate from 28 per cent to 18 per cent for all categories as being requested by the auto industry for sometime now would have been the real demand stimulant.

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