Policy reforms and stimulus package crucial to bring India’s auto industry back on track, says GlobalData

Following the news that auto industry heads met Minister of Heavy Industries and Public Enterprise to seek urgent government help;

Bakar Sadik Agwan, Senior Automotive Consultant at GlobalData, a leading research and consulting company, offers his view:

“Automotive industry is among the sectors excluded from the list of ‘essential services’ since the announcement of lockdown on 25 March 2020 and thus production, supply and sales of automobiles was under strict halt, eventually resulting in ‘zero’ volume sales across all segments in the first month of FY2021. Further extension of lockdown till 17 May 2020 implies that the demand will remain slumped. However, the government has made relaxation for the supply-side; and OEMs and component manufacturers are now slowly resuming their production.

“The auto sector, which has been reeling under declining sales volumes even before the pandemic kicked-in now stands in utter need of support from the government. The automotive industry bodies have been consistently asking government for measures to minimize the negative impact on the sector, first by extension of BS IV stock sales and now with demand to be covered under ‘essential services’ and later seeking stimulus package to revive growth.

“The Society of Indian Automobile Manufacturers (SIAM), Automotive Component Manufacturers Association of India (ACMA), and Federation of Automobile Dealers Association (FADA) have recently requested the government to re-commence the operations of the entire automotive value chain, including OEMs, component manufactures, dealers, service workshops and regional transport authority, including in the geographies categorized as red zones i.e., the COVID-19 hotspots. Key executives from the sector also demanded Minister of Heavy Industries and Public Enterprise urgent policy reforms and fiscal stimulus to revive the growth of the sector. Key demands include cut in goods and service tax (GST), incentive-based scrappage policy and fiscal stimulus includes liquidity support to component manufacturers and dealers.

“The Indian automotive sector has consistently supported the government through the COVID-19 crisis with total production halts and significant CSR activities/donations, the sector reacted swiftly to the situation with no major job losses till date and has also offered benefits to customers through the extension of warranty period. Long existing economic slowdown coupled with COVID-19 pandemic and the resultant lockdown make evident that demand for automotive may not pick-up unless there is push from the government through reforming of policies and fiscal stimulus, else the sector may face deep challenges including over-production, declining profits and job losses which in turn will negatively impact the GDP, to which the auto sector presently contributes 7.1%.”

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