A
Guarded Optimism
Jayendra Kachalia, President
Dear friends,
The year 2004-05 has come to an end. It is gratifying to
note that all the segments of automobile industry have posted
healthy growth. Passenger cars during the year have scaled
up by 20%, commercial vehicles by over 25%, 3-wheelers by
6% and 2-wheelers by 17%, with overall industry growth being
17% in terms of numbers. The demand has been fed by a strong
economy, increased disposable income, car being seen more
as a necessity, government spending on road and infrastructure,
falling interest rates of finance and manufacturers bringing
in wider range of models and more variants supplemented
by increased marketing efforts.
Considering that virtually all growth drivers are present
in the Indian economy, we can expect to see a fairly good
growth in the year 2005-06 as well. However, we have to
be guarded in our optimism and try not to be euphoric at
this juncture. Uncertainties continue to grip the industry,
the trade, the consumers and the country alike. We are faced
with the spectre of spiralling oil prices. Crude prices
are currently hovering around $58/barrel and a few economists
are predicting it to reach $100 mark before the prices start
falling. While I don't subscribe to such a scenario happening,
we must appreciate the fact that in a country like ours,
which is dependent on imports to the extent of 70% of its
requirement of petroleum products, even a small dose of
increase in prices of petroleum products can make all the
plans and projections about the economy go awry. At the
same time, the fact that India has shown resilience and
have been able to weather the storm in the past should not
be lost sight of, though it comes as a cold comfort.
The rising steel prices are another area of worry for the
industry. I wonder how long the industry will be able to
absorb the rising input costs. Adding burden to the input
costs is the shift to the next stage of emission norms from
1st April 2005. In fact, we are already witnessing the manufacturers
jacking up the prices of their vehicles, partially passing
on the increased costs to the customers.
The problems are compounded by the multiplicity and high
level of taxes on motor vehicles. Recently, the Delhi Government
has effected a hefty increase in the life-time road tax
on non-transport vehicles. The increase ranges from about
Rs. 18,000 in case of Baleno to Rs. 35,000 in the case of
cars in D-segment. The price of a Mercedes goes up by around
Rs. One lakh due to this increase in road tax. Somehow,
it seems, motor vehicles have become a favourite whipping
boy and an easy mean of revenue generation for the State
Governments. The fact that development of automobile industry
is necessary for an all-round growth has, perhaps, not been
appreciated.
While the Central Government has over the years been rationalising
taxes on motor vehicles, the State Governments have resorted
to not only increasing the existing taxes but also coming
up with various forms of levies on motor vehicles. It is
a classic case of one hand doing something and the other
undoing it. We have seen what the automobile industry and
motorisation has done to the economies of the developed
countries. These developed countries have piggybacked on
the growth and development of automobile industry to reach
where they are today. Our humble submission is that automobile
industry should not be looked at merely as an easy source
of revenue collection, but from the wider perspective of
it being a catalyst for the technology upgradation, employment
generation and all-round growth.
What we have experienced so far is that when there are more
taxes in various forms, there is more confusion and litigation.
Sales tax on warranty parts and service tax are the cases
in point. There are a whole lot of cases being contested
at various fora on these issues. In such a situation, we
are always bogged down with extraneous things and not able
to direct our efforts whole hog towards growth and development,
which alone can help ameliorate the lot of society as a
whole.
All said and done, I remain an optimist. We have battled
heavy odds stacked against us in the past and have continued
to march on. Therefore, there is no reason why we should
not have a good growth in this year as well. The upbeat
mood stems from the fact that there is a continuing emphasis
of the Government on infrastructure, rural economy and social
sector, which should lead to employment generation and rise
in income levels of the people. Old economy is doing very
well and there is a burgeoning middle class, whose lifestyle
and aspirations are touching a new high. I am of the view
that in spite of uncertainty on oil price front, rising
input costs and other irritants, we shall be able to achieve
a decent growth of 10-15% across all segments of industry
in the year 2005-06.
An important landmark in the history of Indian taxation
system, i.e., VAT has ushered in effective from 1st April
2005. 21 States and 2 Union Territories, namely, Delhi and
Pondicherry, have migrated to VAT. There are still 8 States,
which have not adopted the VAT. While, we in FADA, welcome
this measure, as VAT is a progressive system of taxation
and is successfully operating in over 130 countries, things
are not looking all that rosy at the ground level. Utter
confusion in many quarters in understanding the VAT and
its implications, fears of price hikes, threats by traders
and whole-sellers to go on indefinite strike, imbalance
created by some States opposing the adoption of VAT, have
resulted in VAT implementation in various States turning
into a chaotic affair.
Talking about implications of VAT on our used car business,
in pre- VAT era, most of the States did not charge sales
tax on used car sales, while Delhi charged a flat sales
tax of Rs. 750/-, Gujarat a flat rate of Rs.1,000/- and
Maharashtra @12% on value addition after allowing an abatement
of 331/3%. We now understand that VAT on used car sales
by registered dealers in Maharashtra will be charged @ 4%
on the entire invoice value to the customer (though, this
again is not followed uniformly by all the States). Big
players in the organised sector, e.g., Maruti, Ford and
Honda Siel have ventured into this business activity and
created a network of outlets for pre-owned car purchase
and re-sale. Cars before resale are subjected to rigorous
quality checks and refurbished, which affords assurance
to the customers about the quality of product and after-sales
warranty & service. The customers also feel assured about
the genuineness of transaction. However, the heavy amount
of VAT on sale of pre-owned cars will wean the customers
away to the brokers in unorganised sector, who, as is well
known, pay no taxes nor do they undertake any liability.
In the process, the State Governments will lose revenue,
which otherwise would have accrued to them, had the sales
been through registered dealers in organised sector. Our
submission is that VAT on used car sales should be pegged
at a maximum of 1 %. FADA has made representations to the
Empowered, Committee explaining our stand and apprising
them of the dangers of used car trade moving to unorganised
sectors. The response has so far been encouraging and we
are hopeful that VAT on used cars will be levied only on
the component of value addition at the dealer's point, which
is the essence of the very concept of VAT.
As for activities of FADA, strengthening the training programme
for automobile dealers is on the top of our agenda. FADA
is taking steps to make the training programmes an ongoing
activity in a structured form. All the automobile dealerships
are facing shortage of good managerial and technically skilled
manpower. FADA is, therefore, also exploring the possibility
of associating with some of the ITI's and other institutions
with a view to getting manpower suiting the needs of automobile
dealerships.
We look forward to your suggestions, if any.
With best wishes,
Yours sincerely,
Jayendra Kachalia |
