Lack of liquidity flows from non-banking financial companies (NBFCs) and new collateral conditions imposed by banks for inventory financing seems to be the main reasons for the slowdown in the auto sector, the government sources told CNBC-TV18.
The government view right now is that the liquidity crunch in the market needs attention. The flow of liquidity from NBFCs to consumers, also the flow of financing from banks to dealerships needs to improve. They do agree with the industry that the new collateral norms, imposed by some banks that demand collateral of up to 25-50 percent, are imposing hardships on dealerships.
At the same time, the consumer finance sector is also a problem that needs attention. However, as far as goods and services tax (GST) reduction goes, the government believes that this is a long drawn out process, it has revenue repercussions and that is not the real reason for the slowdown in sales.
There is also a feeling in the government that the overall registration data does not paint as grim a picture as the industry is making out to be. The retail numbers for the month of June that were released by the Federation of Automobile Dealers Association (FADA) showed a positive drop in inventory levels for passenger vehicles but for two-wheelers, three-wheelers, consumer vehicles (CVs) the inventory levels were still a matter of concern.
The government also feels that a large number of customers prefer to use cab aggregators on a day-to-day basis. They are also putting the blame on original equipment manufacturers (OEMs) for not bringing out BS-VI vehicles on the road, so it seems that the government is focused on the liquidity problem now, not so much on the GST issue.