A short slide
The automobile sector, hit hard by demonetisation and BS-IV ruling in 2016/17, may see short-term volatility due to GST.
- Jul 22, 2017,
- Updated Jul 26, 2017 12:46 PM IST
In the April-June quarter of the current financial year (FY2017/18), the automotive sector in India was expected to bleed for two key reasons. First, a drop in prices was on the cards post the launch of the Goods and Services Tax (GST) on July 1 and buyers decided to stay away from the market till it happened. Second, auto dealers could not avail of input tax credit on stocks existing before July and, hence, companies were offering huge discounts, resulting in margin pressure. Short-term demand issues persisted. As per data from the Society of Indian Automobile Manufacturers (SIAM), sales across the overall commercial vehicles segment declined by 9.1 per cent in the June quarter compared to the year-ago period while three-wheeler sales stumbled by 24.75 per cent. However, sales in the passenger vehicle segment grew by 4.38 per cent during the quarter.
All is not doom and gloom in the auto segment. For one, the industry has welcomed the compliance requirements to be followed and is working accordingly. Vass of ICICI Securities thinks consumers have come back, but obviously, uncertainty [regarding pricing and taxation] will not help. However, BS-III ban was a policy decision that caught everybody unawares, and it had an impact.
"Because of GST, vehicle prices will come down by 3-4 per cent, and the price benefits will be passed on to consumers, which will push demand," says Abhishek Jain, senior analyst with HDFC Securities.
Some of these are already happening on the ground. For instance, most automakers have ensured price cuts in sync with the new tax regime. Ex-showroom prices of Maruti Suzuki models have come down by up to 3 per cent while Hero MotoCorp is offering price reductions on mass-selling models ranging from `400 to `1,800. With prices coming down and technology being revved up - BS-IV compliance and leapfrogging to BS-VI by April 2020 are proof enough - the momentum is building, although slowly. ~
Additional inputs by Chanchal Pal Chauhan
@niti_kiran
In the April-June quarter of the current financial year (FY2017/18), the automotive sector in India was expected to bleed for two key reasons. First, a drop in prices was on the cards post the launch of the Goods and Services Tax (GST) on July 1 and buyers decided to stay away from the market till it happened. Second, auto dealers could not avail of input tax credit on stocks existing before July and, hence, companies were offering huge discounts, resulting in margin pressure. Short-term demand issues persisted. As per data from the Society of Indian Automobile Manufacturers (SIAM), sales across the overall commercial vehicles segment declined by 9.1 per cent in the June quarter compared to the year-ago period while three-wheeler sales stumbled by 24.75 per cent. However, sales in the passenger vehicle segment grew by 4.38 per cent during the quarter.
All is not doom and gloom in the auto segment. For one, the industry has welcomed the compliance requirements to be followed and is working accordingly. Vass of ICICI Securities thinks consumers have come back, but obviously, uncertainty [regarding pricing and taxation] will not help. However, BS-III ban was a policy decision that caught everybody unawares, and it had an impact.
"Because of GST, vehicle prices will come down by 3-4 per cent, and the price benefits will be passed on to consumers, which will push demand," says Abhishek Jain, senior analyst with HDFC Securities.
Some of these are already happening on the ground. For instance, most automakers have ensured price cuts in sync with the new tax regime. Ex-showroom prices of Maruti Suzuki models have come down by up to 3 per cent while Hero MotoCorp is offering price reductions on mass-selling models ranging from `400 to `1,800. With prices coming down and technology being revved up - BS-IV compliance and leapfrogging to BS-VI by April 2020 are proof enough - the momentum is building, although slowly. ~
Additional inputs by Chanchal Pal Chauhan
@niti_kiran