India's Largest Carmaker Contradicts Finance Minister on Slowdown in Industry

A top Maruti Suzuki executive has come out against Union Finance Minister Nirmala Sitharaman’s recent statements that the massive car sales slump in India has to do with the proliferation of App-based cab services such as Ola and Uber. Refuting what Ms. Sitharaman had to say about the sales slowdown, here’s what Shashank Srivastava, the Executive Director (Marketing and Sales) at Maruti Suzuki had to say,

The ownership pattern in India still has not changed and people purchase cars with an aspirational aspect. The Ola and Uber factor may not be strong to contribute to the current state of slowdown. Ola and Uber came into existence during last 6-7 years. In this period, the auto industry also saw some of its best times. So, what happened only during last few months that the downturn became so severe? I do not think it is only because of Ola and Uber. In India, 46 per cent of the car buyers are first time users. It is an aspirational behavior. People may use public transport like Ola and Uber to go to offices on weekdays, but still they buy a vehicle for the weekend outings with the family.

Both the Indian auto industry and auto component manufacturers are now waiting for the GST council meeting on the 20th of September, 2019, with hopes that the GST council that includes voting members from both the central and state governments, cut the rate of GST on vehicles and auto parts from the prevailing 28 % to 18 %. This cut, is what the industry says will boost sentiment and sales in the short term. The finance minister Nirmala Sitharaman has been non-committal about any GST cut, saying that it would be the collective decision of the GST council.

Many states are said to have reservations about the GST rate cut on vehicles and auto parts as such a cut would directly impact their revenues. In fact, the GST fitment committee, which is responsible for calculating estimated revenues, has warned against such a rate cut. The fitment committee has noted that any GST cut on vehicles and auto parts would result in a revenue shortfall of Rs. 50,000 crores. Kerala’s finance minister Thomas Issac has commented that he’s not in favor of a GST rate and that the central government may cut cess instead if it intends to give the auto industry some relief.

While most players in the auto industry and the auto components sector have been pushing for a GST rate cut, Maruti Suzuki’s chairman RC Bhargava has taken a contrarian view on this subject. He’s noted that any temporary cut in GST will not help and that a lot more needs to be done to fix the issues that have caused the current sales slowdown in the auto sector.