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Automobile

India automakers suffer record sales slump in August as slowdown deepens

Industry bets on tax cut, festivals to spur demand

Sales of passenger vehicles plunged 32% to 196,524 units in August. (Photo by Takaki Kashiwabara)

MUMBAI (NewsRise) -- Passenger vehicles sales in India posted a record slump in August amid a persisting demand slowdown, even as uncertainty looms on the industry's long-standing demand for a tax cut on automobiles.

The automobile industry in Asia's third-largest economy has been struggling for months as consumers cut back on spending amid slowing economic growth and mounting fears of job losses. India's gross domestic product expanded at the slowest pace in five years in April-June as banks tighten credit in the face of ballooning bad debt levels. In a bid to cope with the persisting weak demand, automakers have slashed production and cut thousands of jobs.

Sales of passenger vehicles plunged 32% to 196,524 units last month, the Society of Indian Automobile Manufacturers, or SIAM, said in a statement on Monday. Of the total, SUVs recorded a 2% decline, while passenger cars witnessed a more than 41% slump - the worst ever -- to 115,957 units. SIAM's automobile sales are counted as factory dispatches and not retail sales.

Last month, the government announced a host of measures to spur demand, including deferring a proposed increase in vehicle registration fee until June next year and providing an additional 15% depreciation on all vehicles acquired till March 2020.

Last week, SIAM raised the pitch for an immediate cut in the Goods and Services Tax rate on vehicles to 18% from 28%.

On Friday, India's Finance Minister Nirmala Sitharaman said the government will take the proposals on lowering the GST to the decision-making GST Council -- set to meet on Sept. 20. Sitharaman heads the panel.

However, according to media reports, the industry may have to wait longer before a cut in the GST is rolled out. The government is grappling with shrinking revenue collection that raises the risk of a wider fiscal deficit. Some of the state governments have also raised concerns about a potential GST rate cut eating into their share of revenue, the reports said.

Last week, top automaker Maruti Suzuki India reported its fifth straight monthly decline in August with a record 33% slump in total sales. The Suzuki Motor unit's production, too, dropped for the seventh straight month in August.

Mahindra and Mahindra, the maker of Scorpio SUVs, reported a 25% drop, while Tata Motors, India's largest automaker in terms of revenue, reported a 49% slump. Domestic sales of Tata cars and SUVs plunged 58%.

To ring in a revival, the industry is waiting for the upcoming festival season when consumer spending surges.

"A slew of regional festivals is upon us, and it will be interesting to see how consumers react over the next two to three weeks," in the run-up to the Hindu festivals of Diwali and Dussehra, Citigroup said in a report last week.

Further, analysts say the introduction of a new vehicle scrapping policy to replace older vehicles with new ones would be a better a stimulus than a GST rate cut.

"Voluntary scrappage is a more convenient, cheap way to boost auto industry than a temporary window of GST cut," Ambit Capital said Monday.

Setting a scrappage deadline of 15 years for older passenger vehicles, and 10 years for two-wheelers would generate additional demand of 7% and 8%, respectively, over fiscal year 2020 and 2022, it said.

Domestic sales of trucks and buses fell more than 39% to 51,897 units in August. Sales of two-wheelers declined more than 22% to about 1.51 million units, the SIAM data showed.

--Rituparna Nath and Dhanya Ann Thoppil

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