Automobiles sector needs a fresh push
Last fortnight, the automobile industry association SIAM released the monthly sales report card for November, which by and large presents a mixed picture tilted more in favour of subdued signals. A small sub-5 per cent uptick was witnessed in passenger vehicle sales, while the two-wheelers segment registered a growth of around 13 per cent. But, when seen on a longer eight month horizon of April-November, there is hardly any promising sign suggesting change in the tide.
The automobile industry in the country has been in a serious contraction mode much before the world became aware of the corona virus. In 2019-20, in fact, it was the first harbinger to foretell an imminent slowdown before other sectors joined in. And, after the corona-led devastation, it has continued to remain one of the leading battered business segments.
As per SIAM’s latest figure, the biggest disappointment probably is on the exports front, where the drop in shipment is as high as over 50 per cent in the passenger vehicles segment during the eight month period. The passenger car export has gone down to 154,376 units, as against 363,913 vehicles during the same period last year, marking a contraction in outbound shipment of close to -57 per cent. In the utility vehicle segment, the drop is a more moderate -28 per cent.
Even as there is no clear outlook on demand revival both in the domestic and overseas market, the prolonged recessionary spell has seen observers talking about the need to take a fresh stance in improving India’s fortune in the global automobile exports market, when normalcy returns. The finished vehicle exports (including passenger four-wheelers) figure in the list of top five items of Indian exports basket (valued around $17 billion in 2018), but there are some structural issues.
For instance, passenger cars, the major strength of any automobile exporting powerhouse, such as Germany, Japan or Korea, are yet to make a major mark internationally – that too, despite the fact that most of the automobile giants have a production base in India and many of them are also using their Indian assembly lines to churn units for the international market, though not in large numbers. In the best year, car export from India has crossed 700,000 units, which is not a commendable number, when looked at in a relative global sense.
Having built a production capacity base in the vicinity of four million car units, India must look at the huge opportunity, which the car exports segment offers. Globally, passenger vehicle segment exports (driven by cars) is estimated to be a staggering $750 billion plus annual market (including second hand car trade) – second only to oil and fuel trade in a normal year. The segment is led by the European countries, followed by suppliers from Asia.
There is immediate historical evidence to suggest that auto powerhouses in Europe in the 1960s, Japan in 1970s and Korea in 1980s had made car exports a major pillar of their exim trade strategy; and they did it quite successfully with supportive policy structure. India today also needs to bring in that kind of focus by making some structural changes. Several industry leaders and experts are demanding moderation in tax structure for the automobile industry, which will help on all fronts, including exports market. In India, barring electrical vehicles (too far off from becoming mainstream vehicles), all other segments carry a GST of 28 per cent.
And, then, there are different components of cess, which make the real applied duty on vehicles in India in the 29-50 per cent range. Passenger vehicles with petrol, CNG and LPG engines not bigger than 1.2 litre and not longer than 4 metres are taxed at 29 per cent, whereas SUVs with engines capacity of over 1.5 litres and longer than 4 m carry tax rates in the range of 45 per cent. As against this, the tax structure for cars in the European countries average 20-25 per cent. In all other major markets, where car exports is a stronghold of their exim trade portfolio, the tax structure is significantly lower than what is prevailing in India.
India certainly needs to fix this taxation irritant, to get more out of cars produced with the ‘Make in India’ tag in the international market. Equally important would be to do away with provisions like fixing high duty on the basis of the length of the vehicle. Some of the key global markets like the US still have a huge appetite for the bigger vehicles (large SUVs, over four-metre length) and there is no point in holding back capable manufacturers, both MNCs and domestic, from making a serious bid to penetrate those receptive markets. India’s automobile sector, long grown on the basis of domestic demand, now certainly needs a fresh impetus to capitalise on robustly rolling out to other countries, as it charts a new growth post-Corona.