Provision of stimulus packages to bring respite for Indian auto makers

Friday 26 July 2013, 11:16 AM by

With the declining growth of automobile sector in the recent past, Heavy Industries and Public Enterprises Minister Praful Patel announced that he will take up the concern to Prime Minister. Commenting on the issue, he was quoted as saying, “We are concerned about the auto sales (decline). I am going to take up the issues with Prime Minister Manmohan Singh and Finance Minister P Chidambaram...we need to give some kind of booster dose to the auto industry.”

Attributed to economic slowdown, the car sales figures have been constantly falling in the past eight months. Industry experts are of a view that the volume of several auto makers have taken a hit across various segments. During June 2013, the demand for cars recorded a drop of 5.1 per cent, amounting to 14,83,443 units against 14,07,767 units reported in the corresponding period of last year. This steep decline had prompted Society of Indian Automobile Manufacturers (SIAM) to ask for a stimulus package from the Government of India. It must be noted that from 2008 to 2009, SIAM had availed a similar package where a relaxation of 8 per cent in excise duty was given to two-wheelers and commercial vehicles.

Asserting apprehension over declining sales on employment, Patel said, “I feel a lot of auto companies are under stress and they are laying off some people. This is not something we should allow to continue for long and there is a need to arrest the decline and take some measures.”

Meanwhile earlier in July 2013, Maruti Suzuki had asked to let off around 200 workers for an indefinite period of time. Furthermore, Mahindra & Mahindra announced that it will stop production in its plants for 8 days during the month to tackle the burden of slow demand. Also, Patel stressed on the need for bringing down the interest rates, but he further highlighted that it is difficult to convince the central bank to reduce interest rates. On this, he said “We understand that it is difficult for the government to convince RBI to lower interest rates. But definitely due to higher rates, manufacturing competitiveness and new investments have been impacted.”

it must be noted that high interest rates have hampered the financing of large projects and manufacturing activities. The Indian auto industry accounts for about 25 per cent of GDP, making it one of the largest employers in India. This move may seem as a brief respite for manufacturers, but concerns over a positive reaction to it by the government have been raised.