Auto sector slowdown: Anand Mahindra calls for short-term booster dose

I believe the government's measures to push the auto industry towards change are sincere and far-sighted, Mahindra said

The auto sector, which is facing one of its worst and most-prolonged slowdowns since 2001, is awaiting a short-term stimulus like reduction in goods and services tax (GST) for revival. 

Otherwise, the industry is unlikely to see a demand uptick, leading to job losses.  

Speaking to shareholders at the company’s 73rd annual general meeting (AGM), chairman of the Mahindra Group Anand Mahindra said, “We need short-term measures to catalyse consumption. I believe the government’s measures to push the auto industry towards change are sincere and far sighted. I can well understand the government’s hesitancy in looking at GST concessions.”

Citing auto industry body SIAM estimates, he said the slowdown has resulted in an 8 per cent loss in GST collections in the first six months of 2019.

On Wednesday, the maker of XUV 500 and Swaraj Tractors reported a 26 per cent fall in net profit and a 4 per cent decline in revenue on lower tractor and SUV sales. Net profit at M&M and Mahindra Vehicle Manufacturing Ltd (M&M+MVML) contracted to Rs 918 crore from Rs 1,238 crore a year ago while revenue and other income decreased to Rs 12,997 crore from Rs 13,551 crore a year ago. The company’s tractor volumes during the quarter declined to 15 per cent to 82,013 units over a year ago while automobiles, which include commercial and passenger vehicles, dropped 5 per cent year-on-year to 12,997 units.   

Pawan Goenka, managing director of M&M, said the auto sector cannot revive without the government’s help in the form of a GST cut. Otherwise, he said the situation may worsen, leading to job losses. Goenka called for a 5-6 per cent reduction in GST rate from the current 28 per cent.  

“This is the fourth slowdown in my career,” he said. Goenka pointed out that after a 3-4 per cent reduction in excise duty during previous slowdowns, which typically lasted for six to eight months, “the industry took off.” He expects the same to happen this time.

PV demand continues to be impacted by slowing down of the overall economy, which, along with tight credit conditions and delayed monsoon, impacted consumer sentiment in both urban and rural India, M&M said in a statement.

Tractor volumes in the June quarter remained sluggish and were adversely impacted due to a weak sentiment in the agri-economy. This was because of delay in the southwest monsoon, among other reasons. 

The domestic tractor industry declined by 14.6 per cent to 1, 91,305 units over the year-ago period. 

Goenka said considering the industry’s poor performance in the June quarter, which typically accounts for three-fourth of the total volumes, he expects the full year tractor sales to remain unchanged compared to last year. This is in contrast to a 5 per cent growth he guided for in the previous quarter.