The Society of Indian Automobile Manufacturers believes it is time for the Government to consider a stimulus package for the beleaguered industry. The industry body made this point while announcing June sales figures on Friday.

Such a stimulus package would ideally be on the lines of what was offered in 2008-09 when the world went into a tailspin after the Lehman crisis. Excise duties for cars were slashed in India to prop up demand and the move worked like a charm.

However, not everyone is convinced that the Government will contemplate something similar this time around. “With a fiscal deficit of five per cent, do you really expect any goodies to be doled out? And the Government just cannot afford to lose out on any revenue at this point,” says an auto sector official.

The excise duty levels were reinstated in last year’s Budget since the industry had got back into shape and there was really no justification for the reduced levies to continue. However, what really raised everyone’s hackles, especially SUV makers, was the Government’s decision to hike excise duties for certain categories (of SUVs) to 30 per cent in Budget 2013.

While this may have impacted sentiment, the truth is that any fresh round of duty cuts, on the lines of 2009, is unlikely to improve matters. Demand for cars has seen a sharp fall in cities as inflation, especially food and fuel prices, is playing havoc with household budgets. Rural India, which made a beeline for cars in 2009, is not in such great shape either thanks to the long drought which literally wiped out livelihoods.

“Thankfully, the rains have been on time this year and it is good news for the auto industry. Hopefully, demand will pick up from September,” adds the official. Yet, to expect a dramatic turnaround in fortunes would only be “wishful thinking”.

The biggest concern for the auto industry is the state of the economy which just seems to be going from bad to worse. “India is really on the edge of a precipice and could be in big trouble if it falls further,” says a top CEO. There are virtually no jobs in the market and this has impacted buying sentiment in a big way.

The other challenge will arise when the slowdown forces the auto sector to lay off contract workers. This exercise has already kicked off in some companies and manufacturers are apprehensive that the move will only spawn anger on shop floors. “We are concerned that lockouts will occur as a result and hope the Government can pull out all stops to revive the economy,” says a car company executive.

Things look absolutely dismal at this point for the auto industry with no signs of any immediate economic revival. With the fiscal and current account deficits spinning out of control, things could actually get a lot worse. “To expect a lifeline from the Government, in the form of a stimulus package, is asking for the moon when the economy is tottering,” says an industry observer.

(This article was published on July 13, 2013)
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