Once bitten twice shy, industry hopes FM will deliver the goods this time

KEY HIGHLIGHTS

• A GST cut on two-wheelers is back on the table after FM Nirmala Sitharaman said they are not sin product
• Motorcycles, scooters and mopeds are in the highest slab of 28% GST right now. A 10% cut to the next slab of 18% will see significant reduction in prices
• Sale of two-wheelers has declined by over 60% in first four months of this fiscal so far. Motorcycles are witnessing a faster recovery in sales
• GST cut may however stretch government finances. Automobile sector contributes 15% of overall GST collections in the country

After being taken for a ride in 2019, the domestic two-wheeler industry is hoping Finance Minister Nirmala Sitharaman will provide relief to the sector by reducing GST to 18 per cent later this week.

On Tuesday, Sitharaman while interacting with members of industry body Confederation of Indian Industries (CII) had said the suggestion of reducing GST on two-wheelers was a good one and the government will consider it. Two wheelers are bracketed in the highest of the four slabs under GST, which is mostly reserved for products that are considered either as luxury or sin, like cigarettes and cars. The next meeting of the GST council will happen on Thursday.

"Since two-wheelers are neither a luxury nor a sin product, they merit a rate revision. Consequently this will be taken with the GST Council," she had said.

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A reduction in GST by 10 per cent on two-wheelers could result in a significant cut in prices of motorcycles and scooters by up to Rs 10,000. This can provide a much needed boost to the industry that has seen sales contract by over 60 per cent in the first four months of this fiscal so far. India is one of the largest markets for two-wheelers in the world with more than 17 million units sold in 2019-20 but over 90 per cent of them are small commuter motorcycles and scooters that cost less than Rs 70,000 and are used as a means of last mile connectivity by the middle class in the country.

Manufacturers believe a reduction in GST at this time when the festive season is about to begin will help improve consumer sentiment in the market.

"We welcome the Finance Minister's consideration of a GST tax reduction for two-wheelers and determining that two-wheelers are an essential tool for personal mobility. Post the slowdown due to COVID-19, the lowering of GST rate at the earliest, will be a welcome move as it will facilitate the much-needed revival in demand ahead of the festive season," said Sudarshan Venu, Joint Managing Director, TVS Motor Company. "Further, in the era of social distancing, customers are looking for affordable personal mobility options and this reduction, if implemented, will make these options more accessible to them. Lowering of GST rates will also help the entire ecosystem of manufacturers, auto ancillaries to dealers, supply chain partners and related vendors. We will await the next steps and hope this is done soon to give clarity to customers who are seeking to enter the market."

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This is not however the first time that the Finance Minister has raised hopes only to disappoint later. Similar noises had emanated from the North Block in August last year as well and the industry was left hanging for over a month before lack of consensus in the GST Council meant the proposal could not go through.

"The wait for a cut last year went on for far too long...almost till the middle of the festive season. Customers postponed their purchases and we lost precious time," a senior executive with a two-wheeler maker in Delhi said. "If they cut taxes, it is great but I am keeping my expectations low this time. They should talk less about it and just do it if they have to. The uncertainty is worse than not doing it."

The demand for a cut in taxes is not just restricted to two-wheelers. Industry body Society of Indian Automobile Manufacturers (SIAM) has recommended government should reduce GST across all segments in the country. With an additional cess of 1-22 per cent, the applicable duty on passenger vehicles is even higher ranging between 29 and 50 per cent. It is one of the highest in the world.

"We were never really hopeful but Tuesday's statement makes it clear that a cut in taxes on cars is out of question," said an executive with one of the leading car manufacturers of the country. "We are on our own. The government is there only to milk us through taxes and will not come to our aid even if we are dying. That is the harsh reality."

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