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Auto Slowdown: Is GST rate cut the answer to the sector's prolonged crisis?


The ongoing slowdown has pushed the automobile sector into its worst crisis in two decades with the sales contracting for the ninth straight month in August, claiming the livelihood of several.

Auto Slowdown: Is GST rate cut the answer to the sector's prolonged crisis?
The ongoing slowdown has pushed the automobile sector into its worst crisis in two decades with the sales contracting for the ninth straight month in August, claiming the livelihood of several.
The August data showed the steepest fall in overall vehicle sales in the country with the numbers across categories, including passenger vehicles (PVs) and two-wheelers and commercial vehicles (CVs), coming in at 18,21,490 units last month as against 23,82,436 units in August 2018, a fall of 23.55 percent.
As the sector bled, finance minister Nirmala Sitharaman hinting at more steps to help the auto companies raised hopes of GST rate cut among the industry players.
“We are working on a few things. Let’s see what comes out. We are conscious that we need to respond," the FM had said earlier in the month, adding the government is considering suggestions from automobile and auto component manufacturers.
However, sources have told CNBC-TV18 that the sector is unlikely to see any decision on the GST rate cut in the Council meet on Friday as the fitment committee has rejected the proposal. The panel, as per the sources, has in writing expressed that it does not believe a cut is warranted.
CNBC-TV18 had reported earlier this month that the committee had expressed its reservations on such a move saying that this would reduce the government's revenues by Rs 50,000 crore every year.
Experts, however, have been divided on the proposal.
'GST rate cut trigger for demand'
According to Pratik Jain, leader-Indirect Tax at PwC India, a rate cut does not necessarily mean a dip in revenues. "If you see, several times rate cuts have happened, but the revenues have not necessarily dropped. On auto and things like that, they might still perhaps reconsider – things like biscuit and all are important, but perhaps can wait," Jain said in an interview with CNBC-TV18 on Tuesday.
Nikunj Sanghi, chairman at Automotive Skills Development Council, believes a cut in GST on vehicles will definitely trigger a demand as people would consider buying vehicles ahead of a price hike owing to the BS-VI transition.
"The trigger that we are looking for is the GST cut which will enthuse the customers to come into the showrooms and do the buying, at the festival time, which they have been postponing for almost six months now,” Sanghi said.
Vishnu Mathur, director-general of SIAM, says if not permanently, the rate should be reduced for a short period of time to push the demand on the track.
Rajiv Bajaj, managing director of Bajaj Auto, supports the demand for GST cut in conjunction with BS-VI at least for two- and three-wheelers.
"Normally one would have dismissed these as being the views of academics but frankly the facts support them. This has been my view also when I have said that all I believe one should look at is possibly a GST reduction in conjunction with BS-VI implementation," he had told CNBC-TV18 earlier.
According to NK Minda, chairman of Minda Industries, the government should do away with the old classification of GST rates and should have a standard rate of 18 percent across the auto sector whether it is component or automobiles.
"knee-jerk" reaction?
Against what looks like the general understanding that tax rate cut is the answer to the sector's one of the worst crises, Kerala's finance minister Thomas Isaac warned against any "knee-jerk" rate reductions saying that GST has not triggered the crisis in motown.
"It is not high GST rate that has caused auto crisis. Pre-GST combined tax excluding service tax ranged between 32 percent and 54 percent. Now tax including compensation cess ranges from 29 percent to 46 percent only. If the Centre is keen to reduce it further, abolish the cess, the rate would come down to 28 percent," Isaac had tweeted earlier.
Sanjeev Sanyal, principal economic advisor to the union finance ministry, on Tuesday called the current slump in the economy "a unique thing" in India's history and added that GST must not be cut solely to stem the slowdown.
In a conversation with CNBC-TV18's Shereen Bhan at the National Management Convention organised by AIMA, Sanyal said, "This time we are witnessing a "genuine demand-driven" slowdown. The government was initiating measures to address the growing concerns. However, the easiest place to initiate a "virtuous cycle" would be the monetary side."

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