Budget 2020

Include auto dealerships in MSME Act: Ashish Harsharaj Kale

Nandana James Mumbai | Updated on January 28, 2020 Published on January 28, 2020

Ashish Harsharaj Kale, President, Federation of Automobile Dealers Associations (FADA).

In an interview with BusinessLine, Ashish Harsharaj Kale, President, Federation of Automobile Dealers Associations (FADA)outlines FADA’s Budget expectations.

The slowdown in the automobile sector has hit auto dealerships across the country hard. Two lakh jobs were cut across these dealerships in just four months, from April to July 2019. Also, 286 dealerships shut shop between January 2018 and April 2019.

Given this harrowing backdrop, it is in the Centre’s interest to help the sector, as there is a lot at stake, said Ashish Harsharaj Kale, President, Federation of Automobile Dealers Associations (FADA). In an interview with BusinessLine, he outlined FADA’s Budget expectations. Excerpts:

What are FADA’s expectations from the Budget?

We have given our Budget recommendations in two different categories — one is purely for the dealer community, and the other for the overall auto industry.

We have two main demands for dealers. Our prime demand is the inclusion of automobile dealers, workshops and service centres under the MSME Act. Through a 2017 circular, auto dealers were kept out of this Act. So, we are not able to enjoy any benefits under the Act, where we qualify under all the parameters.

The other is the reduction of corporate tax...we have asked the government to extend it to proprietary and partnership firms, too. Right now, it is limited to private limited companies. Most of our members are small family-owned businesses across the country. The majority of them are operating through partnership firms or, in some cases, even proprietary firms.

With regards to the overall demand generation, first and foremost is a GST rate cut to 18 per cent, which we have been following up as an (entire auto) industry. The other is to extend depreciation benefits — which are currently for corporates — to individual buyers. The third is the scrappage policy. We have sought incentives in this Budget, particularly for the scrappage policy. We have also requested a reduction in GST rates for used cars also, for which the current GST is at 12 per cent and 18 per cent, depending on the category of vehicle. We have asked for that to be reduced to 5 per cent.

How do you see these measures helping revive growth in the automobile sector, as well as help dealerships?

Over the past two years, car prices have gone up substantially. (However), customers’ budgets didn’t go up as fast. Coupled with that, we have had a softened economic environment. With both these factors, we have had a major slump. It’s not a very healthy situation. With a GST reduction, the price barrier will come down, and it will be an immediate boost to sales.

The auto industry contributes about 7.9 per cent to the overall GDP of the country. And it contributes about 49 per cent of the manufacturing GDP — the entire auto ecosystem, with the vendors and automakers put together. So it’s a huge industry. It should not be looked at as just an industry which is congesting (the roads) or polluting (the environment). I think we have to look at it as a progressive industry. Therefore, if the government reduces GST and helps us generate demand, which I am sure it will, it will be beneficial to the overall economy and definitely to the auto industry.

The scrappage policy, I think, is long overdue in the country. The maximum polluting vehicles today are the older vehicles and this has been proven by various reports and various agencies, even by government ones, but nothing is being done about that. They are also unsafe vehicles. The current lot of vehicles have all graduated to new safety technologies, and today road safety is a major issue. So the government can address these three or four factors with the scrappage policy.

Across the world, an effective scrappage policy has always been backed by good incentives and, from whatever we are hearing today, I think the current scrappage policy is based on disincentives rather than incentives. But, if it gets a good budgetary allocation, this will be an excellent initiative, especially in commercial vehicles — it will help them generate huge demand. And, currently, the CV industry is seeing the worst contraction we have ever seen.

To promote the purchase of automobiles, and to further generate demand, if the depreciation benefit is passed on to even individual buyers, they will also be able to claim depreciation, which will allow them to save on tax. This will encourage someone who is planning to buy a car (to go ahead).

Given that the automobile sector has been battling a prolonged slowdown, how important will it be for the Budget to roll out measures to help both the dealer industry and the overall automobile industry?

It’s extremely important because, one, the contribution (of the auto industry) to the GDP; two, its contribution to employment. Today, the dealer community has about 26,000 outlets across India, and we are spread in every district of the country. So, our employment is a widespread one — it’s not concentrated in some clusters or industrial zones. It’s there in every district, town and village of the country. We directly employ about 25 lakh people. Indirectly, we employ close to another 20 lakh people, who are involved with us as our service providers. So, if this sector doesn't grow, it's a threat to this employment.

Looking at the stakes that the auto industry has in the overall GDP as well as overall employment, I am sure they will give due importance to it and announce measures which will be demand-generating and specific for the auto industry. We have also given our inputs, and we are hoping that there will be action.

How integral a role has the Budget played in the growth prospects of the automobile sector over the years?

Whenever there has been a tax cut, the demand has obviously gone up in the short term, like in 2009. Both getting down the cost of a vehicle through tax cuts, and putting more money in the hands of the customers will be demand-generating. Specifically now, looking at the current weakness in consumer sentiment, demand sentiment and overall economy, I think the Budget becomes much more important because it’s an opportunity for the government to revive demand in a major way. So, we are looking forward to it.

Published on January 28, 2020
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