Budget 2020

Automakers will be looking for the right signals in the Budget

Murali Gopalan Mumbai | Updated on January 31, 2020 Published on January 31, 2020

Whether the Centre is ready to roll back levies and go in for a GST cut remains to be seen

The automotive industry could be looking for a miracle of sorts from the Budget on Saturday but that is not likely to happen.

Even if there are announcements on aggressive road-building plans or putting more money into customers’ pockets by way of income tax reductions, to expect an overnight turnaround would be unrealistic.

This is because there are way too many issues to be sorted out in terms of preparing for the transition to Bharat Stage VI emission norms, an economic slowdown that is showing no signs of disappearing in a hurry, massive levels of job losses and so on.

At best, the Budget can make some big-ticket outlays but the remedy or cure will take longer in coming. Across vehicle segments, manufacturers are coping with the reality of slower offtake for a large part of this calendar while hoping that a turnaround will happen only after October.

The mood can be reflected from the fact that the Auto Expo which follows in less than a week of the Budget presentation hardly has any representation from the regular participants this time. While Volkswagen is among the key players that will showcase its India 2.0 product plans along with Skoda, it is the Chinese who will clearly be dominating the event.

Apart from SAIC which is cranking up a successful India story with its MG Hector, Great Wall Motors and FAW will also be part of the Auto Expo parade. Changan Automobile is planning an India entry too and its representatives are likely to be doing the rounds at Greater Noida where the event is taking place.

Hyundai and Kia will represent the Korean side while Mahindra & Mahindra and Tata Motors are the big guns from the Indian terrain. Mercedes-Benz, Renault and Piaggio will be the faces from Europe while market-leader Maruti Suzuki will take up the Japanese cause. Most of the others are staying away simply because it does not make sense for them to put in big money at this point in time.

In a way, this also indicates what is in store for the car market during a large part of this year and even the decade. The arena could end up being a regular Asian tug-of-war between the Chinese, Koreans and Japanese.

Each of these countries also has its share of political baggage vis-a-vis the other and will go the extra mile in proving their might. How Indian companies, especially in the four-wheeled space, cope with this onslaught remains to be seen.

As for two-wheelers at the Expo, the scenario looks even bleaker with Suzuki Motorcycles being the lone participant among the big names (Piaggio will be present with its Aprilia and Vespa offerings). The other regulars like Hero, TVS, Bajaj, Honda and Yamaha are staying away which is a telling statement for a country which is the world’s largest producer of bikes and scooters. Clearly, manufacturers have other priorities and there is little for them to gain from an event like the Auto Expo.

In a way, this mirrors a growing trend across the world where such mega events which were huge draws till not-so-long-ago do not have quite the same effect right now. One reason could be the growing presence of the Consumer Electronics Show (CES) which is held annually at Las Vegas, US.

Manufacturers have realised that in a changing mobility landscape which is characterised by new challenges like autonomous cars, electrification, and connectivity, among others, it makes sense to be present at the appropriate venue. CES gets the right crowds that automakers are looking for in terms of start-ups and the like who could be potential allies for the future.

Hence, it makes more sense for them to be present here rather than blow up big bucks at events in Frankfurt, Tokyo, Paris or Geneva. The crowds coming to CES are also in sync with the new realities unlike conventional motor shows. Across the world, it is evident that millennials are opting out of the ownership race and are quite content with the likes of Uber to get them from Point A to B.

Likewise, with the environment now emerging as one of the biggest subjects of discussion for the auto industry, manufacturers are more anxious about showcasing cleaner options like electric vehicles. Whether this is taking the joy out of driving with a pure internal combustion engine is a moot point but may just end up filtering crowds at events like auto shows.

In the Indian context, there is no question that the Auto Expo will likewise face similar challenges as what is happening worldwide except that one could argue that this is still a very different market. After all, penetration levels in cars are among the lowest globally which means that there are potentially more people who can be drawn to such shows.

A diversified landscape like India also means that the cultural dynamics are different from other parts of the world. Interest levels to that extent will remain high for events like the Auto Expo and manufacturers would be quite right in assuming that it is an ideal venue to showcase their prowess and products.

Not everyone agrees with this assessment however, with some contrarian views suggesting that a motor show hardly helps in the cause of sales. Likewise, there has been feedback coming in from automakers that participating in the Auto Expo is anything but an affordable proposition. From their point of view, to invest this kind of money especially now is getting increasingly difficult to justify.

The lacklustre response this year is understandable given that the last 15 months have been extraordinarily difficult for companies. The slowdown has had its fallout in terms of massive job losses across plants and dealerships. Estimates have varied but there is no question that it has taken its toll on a host of livelihoods.

Additionally, manufacturers were hoping that there would be some brisk pre-buying of existing BS IV stocks since the BS VI options would be more expensive. The problem is that nobody really anticipated the extent of this slowdown which has been aggravated by the liquidity crisis and the reluctance of finance companies to lend to interested buyers.

Over-regulation has also been cited as a reason for the poor sentiment, especially in two-wheelers, where there is greater degree of price sensitivity. Levies like insurance or safety norms like ABS have done little to improve the mood in the market; on the contrary, these have only discouraged buyers of bikes and scooters.

Will the Centre reconsider their imposition and go ahead and roll back some of these levies? Likewise, it may want to consider reducing the GST on all categories of vehicles to 18 per cent in an attempt to prop up market sentiment. The additional volumes may just offset the reduction in GST levy even to the extent that the energy levels will be back in the automotive ecosystem.

It now remains to be seen what will finally be delivered on February 1. If the Centre is concerned about falling revenues and greater fiscal consolidation, there may not be too much good news coming the auto industry’s way. On the other hand, if it is willing to bite the bullet and dismiss any paranoia of revenue shortfalls, it should just do away with needless levies and get the growth story back on track.

It is going to be a difficult tightrope walk but these are not the easiest of times for the economy either. The auto industry contributes to nearly 50 per cent of the manufacturing GDP. It should not be allowed to languish any further.

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Published on January 31, 2020
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