At present, GST follows a four-tier system of 5 per cent, 12 per cent, 18 per cent and 28 per cent.New Delhi: This is one of the unusual years when the festive season comes in such a rapid sequence.
The early part begins with Ganesh Chaturthi, Onam and Navratri in late August–September before continuing into Dussehra, Diwali and Dhanteras in October. From the auto industry’s point of view, this provides the first lift to regional demand where, traditionally, the festive season drive volumes.
However, the attention this year is seeking greater clarity around the proposed GST cut, the largest tax overhaul since 2017, which willl bring down on-road vehicle prices. Industry experts say the timing will be crucial as it will potentially set the tone for the festive season which typically contributes 30-40 per cent of annual automotive sales, against the present backdrop of subdued demand.
According to stakeholders, a smooth transition is imperative where there needs to be clarity on vehicle slab classifications and whether a replacement for the compensation cess will be introduced.
Many dealers ETAuto spoke to were of the view that customer confusion around the tax discussions had prompted them to defer purchase decisions. “While consumer demand was strong in the first 15 days of August, the past week has seen buyers enquiring more about potential GST and cost benefits rather than making bookings,” a Delhi-NCR dealer said.
According to another retailer, taxes have already been paid on existing stock at dealerships while new sales will attract GST as per revised norms. It may be recalled that the 28 per cent slab will be removed making way for the reduced 18 per cent.
Rising inventory, however, could add to working capital pressures and interest costs. An industry veteran, who did not wish to be named, cautioned that if uncertainty continues, dealers may limit despatches to popular, high-demand models to avoid building stock at the higher tax rate. A a result, this will create more challenges for OEMs.
Vivek Srivatsa, Chief Commercial Officer at Tata Passenger Electric Mobility, said the GST cut is a long-awaited move that could significantly boost consumer demand in the long term. However, he cautioned that the current period of uncertainty is challenging, adding that “he sooner the government makes an announcement, the better”.
“As long as there is uncertainty, there will be an impact on consumer demand, which creates pressure when retail is already slow in the industry,” he said on the sidelines of an industry event on Friday.
According to a PTI report, the GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet in New Delhi on September 3-4 to deliberate on a two-slab tax structure. Finance ministers of all states and UTs, who are part of the Council, will review recommendations from three GoMs (group of ministers) on rate rationalisation, compensation cess, and health and life insurance.
Earlier this week, the GoM on rate rationalisation agreed in principle to the Centre’s proposal to merge existing slabs into a two-rate GST. This is intended to see GST move to a two-rate structure of 5 per cent and 18 per cent, classifying goods and services as ‘merit’ and ‘standard’, with a special 40 per cent levy on ultra-luxury cars and sin goods. At present, GST follows a four-tier system of 5 per cent, 12 per cent, 18 per cent and 28 per cent.
Mahindra & Mahindra, which is among the few automakers benefiting from strong SUV demand and recent model launches, said it remains in a “wait-and-watch mode” on consumer sentiment amid the prevailing uncertainty.
“Since the timeline for GST implementation is unclear at this point, different customers will choose to do different things. For some, buying for Onam is very important, so they will end up going ahead with purchases as auspicious occasions in India are an important sentiment,” said Chief Executive Officer Nalinikanth Gollagunta.
Meanwhile, Vikram Gulati, Country Head and Executive Vice President, Toyota Kirloskar Motor, declined to comment on the proposed tax cuts as it is “just too presumptive at this stage” until the fine print is out.
While the long-demanded GST cut is expected to positively impact the bookings and sales for entry-level cars and commuter motorcycles, experts caution that this may not be sustained beyond the festive push, especially in urban areas where bigger-sized, feature-rich, safety laden vehicles are taking up a big time.
“Rural demand has not yet fully recovered across the country. In urban markets, entry-level cars are being offered at discounts of ₹50,000–₹60,000, yet sales remain sluggish,” an industry veteran said. Maruti Suzuki, the lead player in the compact car segment, has constantly maintained that its small car range needs a tax break to get back on track with brisk sales. Whether this lead to a resurgence in demand for models like Alto remains to be seen.
This is equally true for entry-level and commuter motorcycles which have seen sluggish growth lately and manufacturers will be hoping that the new 18 per cent GST regime will give a leg-up to sales. By the end of the day, it is the customer who will decide which way the wind will blow.
