Temporary cut in GST will reverse downcycle in auto demand, says M&M’s Pawan Goenka
Though the Union Budget 2019 was silent on GST on automobiles, the only way to get out of the vicious downcycle of slowing sales would be to have a temporary rate cut, said Pawan Goenka, Managing Director, Mahindra & Mahindra (M&M).
The automotive industry has been reeling under a trend of falling sales since the past several months owing to tightened retail finance, raised vehicle prices, insurance hike and negative buying sentiments.
As per data shared by the Society of Indian Automobile Manufacturers (SIAM) sales of all automobiles slumped by 12 percent during the April-May period. The fall in sales of passenger vehicles was the steepest to 19 percent during the same period.
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“Given that the auto industry is a big contributor of GST it will be difficult for the government to make any reduction in that. Having said that there is an immediate need for giving the auto industry a flip. I believe the only way to do it is by making a temporary reduction in GST. By temporary I mean a period of six months. This would really spur demand,” said Goenka.
A similar measure was adopted in 2008-09, then UPA government decided to cut excise duty to stimulate demand. This was done over a two-phase process by the finance minister Pranab Mukherjee. The industry responded positively with a solid growth in demand.
Presently all internal combustion engine-powered vehicles have a minimum of 28 percent GST including two-wheelers. SIAM had put forward a strong case of bringing this down to 18 percent.
Goenka further added that after the end of the six months period the government could look at reinstating the GST back to its earlier level before readjusting it around April 1, 2020, which is when the industry will embrace Bharat Stage VI.
“Under BS-VI the price of my vehicle will go up anyway by say Rs 1 lakh. And through this the government will get an additional Rs 48,000. So their GST kitty will go up. It is then that the government could look at some rationalization of GST rates which could be more of a permanent in nature,” added Goenka.