Disappointed by government's move to discontinue excise sops for cars and consumer durables from January 1, 2015 , Society of Indian Automobile Manufacturers President Vikram Kirloskar said the move will make it tough for the auto industry to sell vehicles.
According to him, the overall auto industry has been hurt even with a lower duty and so, with a high duty it is going to be even harder.
In an interview to CNBC-TV18, Kirloskar said that in the past 12-14 months the industry has worked very hard to squeeze its costs which will continue now. "Everyone down the value chain, the suppliers - a whole lot will be under more and more pressure to reduce costs which means more efficiency. I do not know what effects it will have on labour but there are bound to be some effects if the sales don't pick up," he added.
Below is verbatim transcript of the interview:
Q: Do you think the market is now set to absorb such a price hike if the excise duty cuts are done away with? We have just seen 10 percent sales growth in passenger cars this year just when the industry was coming back to life.
A: Taxes on all vehicles are very high. It is very high considering a sector which is so crucial to the "Make in India" policy and for manufacturing in general. This is almost 40 percent of the manufacturing sector in the country. So, we are talking of almost 40-50 percent of the cost of a vehicle is in taxes. As an overall concept the government should look at it.
We need to grow the manufacturing sector and see how to increase the volumes out here because it is one fundamental thing which is at the bottom which the government should consider.
We persuaded the government in the last two years and they reduced the excise duties which had gone up very high. They reduced it in the last Budget and the present government also continued it till December.
I am told that the finance minister has said that he will decide on December 31.
Q: What is high and what is it?
A: It is going to make it very tough to sell.
Q: But if we go back to the original rates where SUVs were being taxed at around 30 percent and sedans at 27 percent and we had small cars being taxed at 24 percent, this is before the benefit coming in. Were those very high rates? Can the industry not sustain them if economic growth is coming back on track?
A: Around 30 percent on an SUV, the SUV sector in the last couple of months has actually come down. If you look at the overall picture, maybe our company has not been so badly hit but overall it has been hurt even with a lower duty. So with a high duty it is going to be even harder. And 30 percent is a huge duty plus in addition to that there are road taxes, the whole thing is crazy. The whole thing doesn't make sense.
Someone in the government has to think of this as this is not a place to make money off the top end. It has to make money by increasing the size of the industry and creating more job employment. I will be very disappointed if this doesn't continue, the whole industry will be disappointed.
Q: You would be disappointed but you do have 24 hours left. Have you sought any meeting with the finance minister tomorrow to try and explain this case to him, to say why it is important to go ahead with the concessions?
A: We have done everything we can.
Q: Are you meeting the finance minister tomorrow?
A: No, I am not.
Q: If you don't get any SOPs from the government, what is the game plan? How do you get your sales back on track? You are saying you are going to have to pass on the burden to the consumers. Disposable incomes have not improved at all. The governor has not cut interest rates as yet for car loans to become cheaper, so what is the game plan of the industry to get out of the woods?
A: In the last 12-14 months the industry has worked very hard to squeeze its costs. So, that cost squeezing will continue. Everyone down the value chain, the suppliers, a whole lot will be under more and more pressure to reduce costs which means more efficiency.
I do not know what effects it will have on labour but there are bound to be some effects if the sales don't pick up. We have 40-50 percent excess capacity in the industry. I have been asking the government to say this is the big opportunity. It is very easy to grow sales, grow taxes if you can grow demand. Increasing prices is not going to grow demand.
We are going to be stuck in a situation where we are just going to squeeze ourselves more in the next 12 months unless interest rates come down. You are absolutely right on the disposable income.
If the EMI growth is less than the growth in disposable income then the car sales will go up. If the EMI growth is more than the disposable income car sales are not going to go up.
