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Automobile

Indian automakers call for tax cuts as sales slump continues

Passenger vehicle sales drop more than 30% last month

MUMBAI (NewsRise) -- India's automobile industry has raised the pitch for an immediate tax cut to help spur demand after a slump in sales in August at Maruti Suzuki and Tata Motors.

The Society of Indian Automobile Manufacturers, or SIAM, on Monday urged the government to consider reducing the Goods and Services Tax rate on vehicles to 18% from 28% as the industry reels under a prolonged slowdown.

The sector has been tottering since July last year as a deepening liquidity crisis and slowing domestic economy damp consumer spending in Asia's third-largest economy. The weak demand has triggered a string of production cuts and thousands of job cuts, driving the industry into one of the worst downturns ever.

The monthly reports of various companies for August have been "dismal," with 30% erosion in passenger vehicles sales, SIAM President Rajan Wadhera said in a statement on Monday. "The consumer sentiment continues to be low," he said.

Top automaker Maruti Suzuki India reported its fifth straight monthly decline in August with a record 33% decline in total sales. The Suzuki Motor unit's production, too, dropped for the seventh straight month in August. Domestic sales of Maruti's cars, minivans, and sport-utility vehicles fell more than 36% to 93,173 units, while exports slipped 11% to 9,352 units.

Rival Mahindra & Mahindra, the maker of Scorpio SUVs and farm equipment, reported a 25% slump in total August sales to 36,085 units. Passenger vehicles sales declined 11% during this period, the Mumbai-based company said.

Tata Motors, India's largest automaker in terms of revenue, reported a 49% slump in total sales. Domestic sales of Tata cars and SUVs plunged 58%. The company said it was focused on improving the retail sales by bringing down the inventory level at its dealers by 3,000 units.

Meanwhile, automakers are now hedging the risks by diversifying their portfolio into shared mobility, with Mahindra, last month, agreeing to buy a 55% stake in cab rental firm Meru Cabs. In 2015, Tata Group's private equity arm made an undisclosed investment in U.S. ride-hailing service Uber. Earlier this year, South Korea's Hyundai Motor and Kia Motors agreed to jointly invest $300 million in local ride-hailing service Ola.

In a bid to spur demand, Finance Minister Nirmala Sitharaman had last month announced a slew of measures, 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. It also lifted a ban on buying new vehicles by various government departments to replace the older ones.

On Monday, Sitharaman said the government will take a proposal to cut the GST rates on automobiles to the GST Council, headed by her. The council is set to meet on Sept. 20.

The industry has long been clamoring for a rate cut and a stimulus package, especially ahead of the festival season when consumer spending surges.

"It is imperative that decisions are taken quickly and announced without delay so that the industry could hope for a better festival season that could harbinger a recovery," SIAM's Wadhera said.

However, in the absence of a direct stimulus by the government, the recovery will take "longer than anticipated," brokerage JM Financial said Monday.

Shares of Maruti fell 1.3% in Mumbai trading, while that of Mahindra lost 2.5%. Tata Motors closed down 3.5%, while the benchmark S&P BSE Sensex lost 2.1%.

--Dhanya Ann Thoppil

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