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Rollback of mandatory insurance, lower GST on petrol, diesel vehicle.

Date: 24-01-2020
Subject: Rollback of mandatory insurance, lower GST on petrol, diesel vehicle
With just over a week to go for the Union Budget, various industry, corporates and other experts voiced their expectations in their interviews with CNBC-TV18.

Rajiv Bajaj, MD, Bajaj Auto said if the auto industry has to be put back on 15 percent growth track then the government would need to do three simple things.

"First, this mandatory insurance that was brought into play in September 2018, should be rolled back. Second, imposing anti-lock braking system (ABS) on 150 CC or 200 CC scooters or motorcycles was complete overkill and I would urge the government to consider recalibrating this to at least for 250 CC plus two-wheelers. Third, at a time when goods and services tax (GST) for electric vehicles (EVs) has been correctly lowered to 5 percent, we should consider lowering GST for petrol or diesel vehicles from 28 to 18 percent."

However, if this is not done, then I anticipate around 20 percent plus degrowth from March or April once BS-VI prices come into play, he said.

According to him, we have to do what is doable right now. "My point for the last several months has been that the industry has been systematically done in by overregulation. This overregulation, whether it is of insurance or of safety norms and now BS-VI, has pushed up the cost of two-wheelers ranging from between 20 percent and 30 percent, depending on whether it is the small or a big vehicle. If you are going to have this kind of cost escalation in a 12-18 month period then it is bound to have an impact on volumes,” he said.

On the rationale behind the demand for removal of mandatory insurance
“We are a big country. People are riding all kinds of two-wheelers, people are living in all kinds of circumstances. If somebody is buying a little vehicle that can do no more than 50 kilometres an hour, and living outside the city, there is no crazy traffic and he doesn’t have to be overly concerned as long as he is wearing a helmet then that choice should be left to him.”

On rural demand growth and whether there signs of recovery

“You will see from the January results of industry – we all talk to each other and we have a feel of where we are headed this month in terms of retail and billing, and I certainly don’t see signs of that. If you look at communications from carmakers, from two-wheeler makers, everybody is only communicating the urgency to pre-buy BS-IV, which tells you that retail is not moving and if you talk to dealers across the auto industry, that is what you will largely hear. Maybe there are some pockets that are doing better but I would not be aware of that.”

On sales
January is slightly better than December which was impacted by a huge pre-buying in October. January-February would be better. "For sure we are going to continue to see degrowth, manufacturers are also very concerned about the billing of BS-IV etc and how things may pan out because there are two views again. One is that in March, we will have a lot of pre-buying of BS-IV and the other view is that we may not."

"Our view is that we cannot take the chance and I mean that three years back when we moved from BS-III to BS-IV we had to follow our competition that put out discounts ranging from Rs 7,000 to Rs 25,000. We don’t make that kind of money on most of our motorcycles. So, it is better to produce BS-VI, to let go of BS-IV because if you are left with BS-IV inventory with the dealers then between the dealer and manufacturer, you are going to suffer a lot of pain,” he said.

On the time required to return to double-digit growth

“Most of us will be selling only BS-VI vehicles from sometime in March – from the middle of March or so at least we would not want to carry BS-IV stock beyond the first week of March etc., and we have planned our production accordingly. If that means we are going to lose some share in March because competition will have heavy discounts on BS-IV vehicles and push up their share for the month; we are not playing that game."

"Having said that, compared to last year – if from April, BS-VI models are going to be 15-20 percent more expensive, definitely we are going to see strong degrowth. Nobody knows if it is going to be 20-25 percent degrowth but it is going to be very significant,” Bajaj said.

Source: moneycontrol.com

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