While a slowdown in the real estate and infra sectors continues to affect the sale of construction equipment, top automobile companies are having to cut their production. What’s more, experts believe that the government’s recent decision to lower the corporation tax rate might not be enough to aid corporate earnings in the September quarter.
In a long-overdue move, Finance Minister Nirmala Sitharaman recently announced her government’s decision to reduce the rate of corporation tax for companies willing to forgo tax exemptions. Many thought this would have a significant and immediate positive impact on the sagging economy. However, top brokerages on Dalal Street differ. They say the tax rate cut may not boost corporate earnings in the second quarter of this financial year. The cut would be offset by reduced sales volumes and revenue contraction in sectors like automobile, energy, and metals & mining, they said.
Meanwhile, the sale of construction equipment has seen a major slump since a crisis broke out at infrastructure financier IL&FS last year. The sales are expected to see a correction of 15-18 per cent by the end of this year.
Talking of the automobile sector, even as Tata Motors insists that it has not yet taken a decision on the future of the Nano, the company has not produced even a single unit of the entry-level car in the past nine months. Only one unit of the Nano has been sold in the domestic market so far this year.
Even the country’s largest automobile maker Maruti Suzuki has not been able to beat the slowdown. Reeling from a prolonged demand crunch, Maruti had to reduce its production by over 17 per cent in September. This was the eighth straight month of production cut for the car maker. A production cut was seen across segments — from mini and compact cars to mid-sized sedan, utility vehicles and light commercial vehicles.
These developments, in spite of the various measures taken by government to bolster the flagging economy, could be seen as some sure signs a slowdown. These should also be a nudge for the government that more policy decisions might be needed to boost economic sentiment.