The Hindu Business Line : Incentives to scrap old vehicles will boost demand

Mumbai, June 17 The Government should give incentives to customers for scrapping old vehicles, in line with what Germany has done to increase sagging vehicle sales, said Dr Pawan Goenka, President, Automotive Sector, Mahindra & Mahindra.

“This will not only boost demand but also ensure cleaner vehicles on the roads,” he told Business Line.

The “scrappage bonus” boosted vehicle sales in Germany by 40 per cent in May.

The Indian automobile industry is now seeking further interest rate cuts to increase demand, reduction of excise duty differential (it is 8 per cent for small cars and 20 per cent for all other categories) and scrapping of Central Sales Tax.

Positive moves

“In December, January and February, the Centre had taken some favourable measures and the results are there for all to see. In the third quarter of last fiscal, vehicle sales were down 26 per cent on a year-on-year basis. This improved to a negative 4 per cent growth in the fourth quarter while all major markets reported a sharp fall. The current quarter is flat and I believe the positive action should continue,” Dr Goenka, who takes over as President of the Society of Indian Automobile Manufacturers (Siam) in September, said.

Focus areas

However, he cautioned that the sector was by no stretch of imagination on a growth path. The Government, he said, should primarily look at three important areas. One is on what can be done to make finance available at a low rate. “The liquidity problem is gone but interest rates on loans are still high from 11-20 per cent. There is scope for a further rate cut,” Dr Goenka said.

The second issue is addressing the excise duty differential issue as there is a “wide gap between the lowest vehicles and highest excised vehicles”.

In his view, the rationalisation of tax differential would help all segments grow. “There is a misnomer about fuel efficiency and size of a car. The huge penalty for big cars for just being 5 per cent lower in fuel efficiency distorts market dynamics,” he said.

According to Dr Goenka, the Government has a big opportunity to focus on road infrastructure development. “More than big numbers in the Budget, we expect some specific plan of action,” he said. Automobile exports could be promoted through some income-tax benefits and the creation of “virtual SEZs”.

On green initiatives, he said, “We are suggesting tax benefits for all types of clean technology including micro hybrids.”

The auto sector is also on course to meet the investment roadmap set by the Automotive Mission Plan. “The target was $45 billion by 2016 and nearly $25 billion has already been invested,” Dr Goenka added.

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