By Rupali HandaThe Coronavirus outbreak has added to the woes of an already struggling auto industry. Before the outbreak, the Indian auto industry was already suffering from a prolonged slump owing to many reasons – a global slowdown, stressed financial sector, weakened consumer demand, drop in private investment, the transition to BS-VI norms, confusion over EV adoption deadline. The pandemic had initially disrupted only the supply chains, but then with the lockdown, the production also came to a halt. It is having a major impact on the auto industry, with manufacturers either totally shut down following the directives issued by local governments or are running with minimal staff at production units to keep their personnel safe.
As per the Society of Indian Automobile Manufacturers (SIAM)’s estimates, the auto industry lost INR 2,300 crore in production turnover for every day of closure. This coupled with a slowdown in aggregate demand with uncertain recovery timeline portents a rough road ahead for the automakers. In this situation, the transition to BS-VI is going to be hampered as the mounting economic effects of the outbreak will lead to deferring of planned purchases.
Globally, the sector is struggling. In a bid to provide some relief, a growing number of countries around the world are announcing stimulus measures to revive the auto industry as it is a large contributor to GDP and employment. Some governments are bailing out the automakers by providing liquidity support, whereas some are announcing measures to boost demand by assuring subsidies and tax breaks.
Urgent action is needed to safeguard the jobs of 35 million workers employed across the Indian auto industry.~
The US Government has announced USD 2.2 trillion economic rescue package for U.S. businesses hit hardest by the coronavirus pandemic, including the auto industry.China’s aid package for the auto industry adds up to around USD 1.13 billion. China announced subsidies and tax breaks for new energy vehicles, such as electric or plug-in hybrid cars, for another two years. Local governments are also stepping in. At least a dozen provinces have encouraged people to buy cars, mainly by offering cash subsidies of as much as USD 1,400 per vehicle.
South Korea has announced to provide logistical and financial support to help the auto industry through the coronavirus crisis. The government said it would speed up customs clearance, arrange freight transportation and provide liquidity support for the auto industry.
Various measures have been announced by the European Union to support the auto industry with European Central Bank announcing Pandemic Emergency Purchase Program to purchase sovereign bonds and commercial papers from member states and commercial companies to infuse €750 billion and maintain liquidity in the financial system.
Britain’s financial watchdog has proposed to car-leasing firms to provide a three-month payment freeze to customers who are having short-term difficulties as a result of the coronavirus.
Over the past few days, industry associations and analysts have also offered up thoughts, solutions and predictions that seem to all add up to what government should consider in the near future. Urgent action is needed to safeguard the jobs of 35 million workers employed across the Indian auto industry, as well as to prevent a cascade of economic hardships that could result from the collapse of an industry that’s responsible for 7.1 percent of India’s GDP.Over the last two months, the government, and the Reserve Bank of India (RBI) have announced some measures that are likely to aid the auto industry. Several carmakers and auto industry bodies have also lauded Prime Minister Modi’s decision to infuse an INR 20-lakh crore economic package, which combined the government’s recent announcements on supporting key sectors as also measures rolled out by the RBI.
However, they are hoping for the announcement of a focused package to support the auto industry, particularly aimed at demand creation in the market.
The auto industry lost INR 2,300 crore in production turnover for every day of closure.SIAM
At present, the automakers in India are demanding bold fiscal measures such as reduction in the GST on vehicles and components to drive the demand in the market; reducing tax on R&D activities to aid more localisation; introduction of an-incentive based scrappage policy, which will help in curbing air pollution, reducing fuel consumption while generating demand for new vehicles in the country; extension of the moratorium on loan payments to three months, which was announced by the RBI, to be further relaxed to at least a year; extension of the vehicle depreciation benefit to FY21; a priority tag for the auto sector for a period of twelve months; extending the validity of selling BS-IV vehicles.
Taking a cue from global measures and analyzing industry’s demands, the Indian government must look into problems of this very important industry and introduce a robust post-crisis stimulus plan to revive the auto industry before it is too late.
The author is a public policy consultant at Chase India, a leading public policy research and consultancy organization.
(DISCLAIMER: The views expressed are solely of the authors and ETAuto.com does not necessarily subscribe to it. ETAuto.com shall not be responsible for any damage caused to any person/organisation directly or indirectly.)