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  • Dinesh Supekar - Partner, Price Waterhouse, and an auto expert

    Dinesh Supekar

    Partner, Price Waterhouse, and an auto expert

    DATE: January 20, 2017, 11:45 AM

    SUBJECT: What is required from Budget 2017 to put India's automobile sector back on the fast track?

    BUDGET->BUDGET 2017

CHAT CLOSED. READ TRANSCRIPT BELOW

  • MODERATOR:

    Hello and welcome to a webchat with Dinesh Supekar, Partner, Price Waterhouse, and an automobile expert, on what is required from Budget 2017 to put India's automobile sector back on the fast track


    DINESH SUPEKAR:

    Hello, everyone


  • R

    ROHIT JAIN

    Greetings Mr Supekar! India is poised to become one of the world's three leading automobile manufacturers, but this growth comes mainly from the passenger vehicle sector. For the commercial vehicles, especially in 3.5 ton and above segments, growth has been stagnant in both passenger and freight movement. Leading commercial vehicle firms like TML, ALL, VECV, DICV, MTBL have invested big in R&D but the return has been minimal. Anticipating an infrastructure development in India and the developing world, companies planned future vehicles early in 2008-10 but the market is still driven by basic segments. What can the government do in order to revive the growth in commercial vehicle segment?

    DINESH SUPEKAR

    You make a valid observation. Many of the new entrants in this space are indeed making losses for a while. However, some of the older and more established players like Tata Motors have done reasonably well in the commercial vehicle space, and are actually making losses in the passenger vehicle segment. The newer entrants seem to be making losses more on account of underutilised capacities. The real issue on hand is therefore how does the Government push forward its economic growth agenda, since this is what will boost overall demand and in turn the demand for commercial vehicles. Further, some of these newer entrants are utilising their capacities for exports...so incentives for exports would also be important


  • R

    ROHIT JAIN

    What should be the government's strategy to bring growth in the automobile sector back to the pre-economic-slump period?

    DINESH SUPEKAR

    There are various factors which impact the growth of the automobile industry, many of which are macro economic factors such as commodity prices, oil prices, interest rate scenario in the country, monsoon and of course, the tax structure. One of the perennial problems of the industry has been a multiplicity of tax rates which have a cascading impact on the costs of the vehicle. The GST is expected to subsume these taxes. What the Government needs to do is to have a simplified GST structure with not more than 3 rates - say a merit rate for small cars and two wheelers, and standard rate for most of the other vehicle categories. An appropriately structured incentive scheme for scrappage of old cars (which invariably are more environment polluting) can be a game changer for the industry.


  • R

    ROHIT JAIN

    What could automobile companies expect and plan for ahead of the Budget?

    DINESH SUPEKAR

    GST implementation pretty much comes to mind, since this is a complex task for most of the automobile sector. With the GST regime pretty much likely to be in place by July 1st, it would be extremely important for all auto companies to complete their impact analysis and be GST ready in the next few months


  • P

    PRATYUSH RAJ

    Do you think India will be able to meet the expectation of becoming a 5-million passenger vehicle market by 2020?

    DINESH SUPEKAR

    The actual sales for FY 16 for the passenger vehicles industry were around 3.4 million vehicles. This would require approximately a growth of 10 percent on annualised basis for the next 4 years if the number of 5 million vehicles were to be achieved. This is not an unrealistic expectation, especially since we are anyway achieving a GDP growth rate of around 6-7 percent per annum as a country. Further, based on recently published statistics by the SIAM, the sale of passenger vehicles have grown by approximately 11 percent during the period April-August 2016 as compared to the same period last year. So the expectation which you mention is very much possible. Needless to say, infrastructure development remains a key area of concern and the Government should do everything to remove all bottlenecks in the process


  • D

    DR T V GOPALAKRISHNAN

    Do you also think that the price of fuels needs to be rationalised for the automobile sector to do better? Also, the expenditure to maintain the vehicles continues to be very high. Service tax also needs to be considerably slashed to make the demand for automobobile attractive. What else do you think is required?

    DINESH SUPEKAR

    Service tax rates could actually go up in the GST regime, and its possible that this could happen in this budget itself. Having said that, taxes such as excise duty, VAT, CST, NCCD, and various cesses contribute to a significant portion of the cost of a vehicle and it is important that this complex tax structure is rationalised at the earliest so as to remove the impact of a cascading effect. There are anti-profiteering measures in the proposed GST legislation which seek to pass on the benefits of such a rationalised tax structure to the end customers, which in turn would make the automobile sale attractive for the end customers. As regards the price of the fuel, your point is absolutely valid, it does have an impact on the automobile industry, but having said that, the prices are by and large linked with the market prices, and to a large extent dependant on State taxes


  • P

    PRATYUSH RAJ

    Indian industry has around 20 companies selling passenger vehicles but one company, Maruti, alone controls 50% of the market. In such a situation, is there really space to accommodate all 20? Will the auto industry also see a consolidation like the telecom sector?

    DINESH SUPEKAR

    Thats a good point which you make. The market is indeed dominated by Maruti which controls a significant portion of the market. Especially because of its dominance in the small car segment. However, consolidation appears a bit difficult since many of these 20 players you refer to are subsidiaries of global MNCs, and any decision on consolidation therefore obviously would be a global decision and not India driven. There could however be sharing of manufacturing facilities/platforms etc and specific partnerships the way we see in Tata and Fiat, Renault and Nissan, Volkswagen and Skoda


  • A

    ABHISHEK JEJANI

    How will new regulations, such as safety norms, emission norms, and fuel efficiency norms impact the industry?

    DINESH SUPEKAR

    These will indeed have a significant impact given the additional investment in new technologies which will be essential to move to these new regulations. In fact, there could be certain products such as carburettors (used in two wheelers) which could end up being totally obsolete, and the companies manufacturing such products would upfront need to start planning on newer products, investments, developing newer vendors etc.


  • S

    SHIVANSH JAUHRI

    As pointed out in this chat earlier by Pratyush Raj, there seems to be a crowding out by too many players in the sector. If there isn't enough space for all, what sort of business models other smaller, weaker companies can adopt to keep their operation viable?

    DINESH SUPEKAR

    Many of such so called smaller companies in the Indian auto sector are actually subsidiaires of large MNCs having strong global presence. Many of such players therefore have focussed on utilising their capacities in India to serve export markets. Shutting down Indian operations does not seem to be on cards for such smaller companies, since India is being viewed pretty much as a long term story ie a market where returns can be made only after 10-15 years. Consolidation in India is also not an option, given that many of these are global players, unless one is talking of sharing of production platforms, manufacuring facilities etc. The business model would pretty much need to be focussed on having as much localisation as possible, and using India to cater to global market requirements, to the extent possible, and gradually make the Indian operations more profitable


  • J

    JYOTSNA RAMANI

    The auto industry was hit hard by weak consumer sentiment and a cash crunch after demonetisation. What kind of hopes do you have from the Union BUdget to boost the consumer sentiment?

    DINESH SUPEKAR

    Reduction in personal income taxes is being spoken about and that would boost the consumer sentiment to a certain extent. Having said that, the impact of the demonetisation was more profound in the rural areas. One important area of focus over the medium to longer term should be spending on rural infrastructure since this is more likely to result in demand boost in the rural areas. The impact of demonetisation should hopefully be only temporary in nature, and there could be a catch up effect in the subequent quarters, especially with incentives and education regarding digital payments, internet banking etc, which the budget should facilitate by announcing appropriate policy measures


  • M

    MD HARIS

    How will the pollution debate impact auto business? India has still not woken up to electric and hybrid vehicles. How far are they from mass market in India?

    DINESH SUPEKAR

    We already have a few electric vehicles in India, but they have not been all that successful on account of various reasons, especially because of the absence of the necessary ecosystem to support such vehicles...for example adequate charging stations etc. Hybrid cars are also existing, but the price point is a challenge for it to be a mass market product