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India's auto sector bets on scrappage policy to revive demand

Updated : August 19, 2019 10:16 AM IST

Accordingly, automobile industry's representatives have sought an 'End of Life' policy from the Central government as a measure to arrest the falling sales.

The policy, if implemented, is expected to encourage customers to go in for new purchases which will be backed-up by government incentives in lieu of their old vehicles.

At present, the sector has been impacted by a consumption slowdown which is a culmination of several factors like high GST rates, farm distress, stagnant wages and liquidity constraints.

India's automobile industry is betting big on a scrappage policy to revive demand following a massive sales slowdown.

The 'End of Life' policy, if implemented, is expected to encourage customers to go in for new purchases which will be backed up by government incentives in lieu of their old vehicles.

At present, the sector has been impacted by a consumption slowdown which is a culmination of several factors like high GST rates, farm distress, stagnant wages and liquidity constraints.

Besides, inventory pile-up at the dealership level and stock management of unsold BS-IV vehicles have become a problem for the sector.

Consequently, the industry's production levels have also receded as demand plunged, eventually leading to job losses.

According to Maruti Suzuki India chairman R C Bhargava, the company has not renewed contracts of the temporary workers due to the slowdown while asserting that permanent workers have not been impacted.

"This is a part of the business when demand soars, more contract workers are hired and reduced in case of low demand," he said while speaking to some leading private TV channels.

Apart from few country-specific features, the policy is expected to be similar to the US government's program -- Cash for Clunkers -- that provided financial incentives for the purchase of fuel-efficient vehicles in exchange for their old vehicles.

Interestingly, the original version of the Indian programme focused more on commercial vehicle segment.

The auto sector is facing its worst crisis in two decades and reports suggest thousands of job losses in the automobile and ancillary industry.

Around two lakh jobs have been cut across automobile dealerships in India in the last three months as vehicle retailers take the last resort of cutting manpower to tide over the impact of the unprecedented sales slump, according to the Federation of Automobile Dealers Associations (FADA).

As per Society of Indian Automobile Manufacturers (SIAM) figures, vehicle wholesale across all categories declined by 12.35 percent to 60,85,406 units in April-June against 69,42,742 units in the same period of last year.

On the other hand, as per data based on registrations collated by FADA, automobile retail sales in the April-June period declined by 6 percent to 51,16,718 units in the first quarter of this fiscal as against 54,42,317 units in the year-ago period.

Passenger vehicles (PV) segment has been the worst hit with sales continuing to decline for almost a year now. In July, market leader Maruti Suzuki reported a 36.3 percent drop in its domestic PV wholesales, while Hyundai saw a dip of 10 percent.

(With inputs from agencies)

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India's auto sector bets on scrappage policy to revive demand

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