Pawan Goenka, Managing Director of Mahindra & Mahindra (M&M)said on Thursday, For short term, Automobile industry will be benefiting with the new Goods and Services Tax Regime (GST), due to the price reduction and restoration of inventory levels at retail outlets, the transformation from old tax regime into new regime, has been “surprisingly smooth”.
He said that “Definitely, in the short-term, I see positive growth, more growth than what we would otherwise have as a result of GST down stocking. Also, price reductions across the board will also drive growth.”
While attending a GST conference he pretends anxieties about Maharashtra which is enhancing road tax on vehicles after the roll- out of GST Regime in order to compensate the loss of Octroi, by saying that it can lead to negative effect for the customers and it is not the standard procedure that must be followed by other states.
As we all know that octroi duty replaced in the new indirect tax regime, to compensate the octroi duty, Maharashtra government on Tuesday has approved 2 percent tax increase in one- time registration on private two and four wheeler vehicles. This is a major concern for automobile manufacturers who fear the move could prompt other states to follow suit.
For the implementation of Goods and Services Tax Regime from 1st July, automobile makers had reduced their inventory levels at retail stores for the month of June. Generally, dealers have maintained inventory at stores of four to six weeks.
Mr Goenka said, “In short-term, there is going to be inventory buildup at dealers because the (pre-GST) inventory levels were lower than what the norm is. Inventory refill will happen in the month of July, August and then festive months of September and October.”
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The discounts being provided by several automobile companies in the month of June were higher than the industry would usually offer during the month. He further added that the development of automobile industry development will depend on the factors such as interest rates on vehicle loans, although good monsoon and overall economy signifies a good indicator for the industry.
While getting settled for GST, Mr Goenka mentioned for M&M that “the transition has been surprisingly smooth” with only one supplier not ready according to the GST on the first day. All the dispatches and deliveries of spare parts and tractor units from warehouses were made absolutely fine.
When asked about the effect of the new regime on hybrid vehicles, he responded that the automobile manufacturers have been requesting to the GST Council and the government to review the taxation rates i.e. 28 percent plus 15 percent cess of hybrid vehicles
“It certainly seems the decision is final. If it happens (reduction of rate) it is fine but I am not expecting it to happen in the short-term.” The automakers will not expect any concession from the government in case of hybrid cars and it will become less attractive and challenging.
Goenka said, “Many players who would have aggressive hybrid plans will have to rethink their plans.” Automobile companies who had planned bigger for hybrid vehicles will have to reconstruct their strategy.
