Roadmap for FADA S P Shah, President Dear friends, We have finished a difficult year. I am happy to note that after 15 months of slowdown and tepid growth, the Indian economy is gathering the pace. At the world level, IMF has projected - global economic growth at 3.9% and India's growth at 7.7% in 2010. Thanks to the timely stimulus package and other policy initiatives of the Government, the economy is abuzz again, as the robust IIP numbers for December 2009 suggest. The industrial output grew by 16.8% and the manufacturing in particular, by an impressive 18.5% in December 2009 augurs well for the growth of auto industry but may also prompt the Government and the RBI to roll back the stimulus. A major cause of worry is the unabated upward inflation spiral. Inflation in the case of food items is sitting pretty high in the range of 18-20%. The Wholesale Price Index (WPI) is already hovering at about 9%. The apprehension is that the acceleration in economic growth could push the WPI beyond RBI's upwardly revised target of 8.5%. Any sharp appreciation in prices could make it difficult for the Government to fund its social schemes the next year and to continue with the expansionary monetary policy. I can understand that calls for withdrawal of stimulus measures are getting shriller given the decent performance of industrial sector and economy in general during the Q3. I can also understand that the fiscal discipline is necessary for sustaining the growth, as the sustained growth requires that we cannot remain on life-support system for good. However, we in auto sector feel that government should continue with policies that promote growth and that the unwinding of stimulus measures, if necessary, should be done gradually over a period of time to allow the economy and the industry to settle down on a firm footing. Growth rate of industrial production, in December 2009 though healthy, may be outlier, as it comes on a low base of December 2008 when IIP contracted by a quarter per cent. For a nation, which is the seventh largest in geographical terms and the second largest in terms of population, our existing physical infrastructure is inadequate. This constrains and limits connectivity. Delhi-Mumbai Industrial Corridor (DMIC) is a major step by the Government to boost the potential of Indian economy by improving the infrastructure sector. Today, India aims at sustained GDP of 9-10 per cent, which necessitates the growth of the manufacturing sector to be at least 13-14 per cent per annum consistently. It is well understood fact that commercial leveraging of a vibrant regional economic centre in an underutilized and under-invested area can usher a new era of economic prosperity leading to industrial development, employment generation, preserving the environment as well as boosting the services sector in India. Recent data show that the growth is gaining traction in India, with manufacturing rising at the fastest pace in seven months in December, according to the Purchasing Managers' Index compiled by HSBC Holdings PIc and Market Economics. Exports surged to a 15-month high in December after rising 18.2 per cent in November, the first increase in 14 months. Exports in Dec'09 were valued at US $14,606 million (Rs. 68,107 crores) and imports were valued at US$24,753 million (Rs.1,15,420 crores) representing a growth of 27 per cent in dollar terms (22 per cent in Rupee terms) over Dec'08, indicating that the world economy is on a recovery path as is the Indian economy. The strength of the Indian economy is enticing foreign companies to expand and set up operations. Toyota Motor Corp., Volkswagen AG and other carmakers introduced 10 new models at the Delhi Auto show in January 2010. Passenger car sales hit 1.43 million units in 2009, the most in three years. To remain competitive, viable and to be able to sustain the growth, we hope that the Union Budget 2010 will strike a fine balance between growth, inflation and fiscal discipline, which, I am sure, our competent Finance Minister will do. We, in FADA, also have a wish list for the Budget 2010. Our expectations from Budget 2010 are that: The stimulus package continues for some more time; AED on cars and utility vehicles of engine capacity exceeding 1,500cc is removed; Depreciation on passenger cars be increased to 331/3% in view of the vehicle ownership cycle getting shorter and mismatch between the book value and the market value; Higher depreciation allowance at 60% in case of buses and trucks purchased in replacement of + 15-year old vehicles be allowed; and GST be introduced and all other local levies removed. Adverting to FADA activities, having successfully concluded our 6th Auto Summit and Auto Dealership Excellence Awards, we are back to the business. At the Council meeting held in New Delhi recently, a number of new initiatives for the benefit of automobile dealers were discussed in addition to continuing with the activities already on the agenda, which have been taken up and are being pursued by FADA with all seriousness. Among the major initiatives, which FADA would be taking up going forward, include: Working with National Automobile Dealers Association (NADA), - USA, Retail Motor Industries Federation (RMIF) - UK and other auto retail organizations in the world for the introduction of Dealer Protection Law in India; Working with manufacturers for extending the duration of dealership agreement to 3-6 years from the present 1-3 years; Pursuing with the Union Ministry of Road Transport & Highways, SIAM and other stakeholders for introduction of Periodic Inspection & Certification (I&C) regime for all categories of vehicles including personal vehicles as in other developed countries; Bringing in suitable measures for protection for the Indian Automobile dealers from the entry of international players in auto retail space in India as reported in the media; and making ADEA an annual feature. NADA represents about 19,700 new car and truck dealers holding more than 40,000 separate franchises, both domestic and international. One must mention here that NADA is a force to reckon with in United States. It’s opinions and views carry a lot of weight among the government circles and manufacturers. NADA played a very active role during the severe recession and was instrumental for initiating the 'Cash for Clunkers' program in the US, which helped in reviving auto sales. It has been successful in bringing about many legislations that worked for dealers like the one recently passed that gave rejected dealerships the right to seek reinstatement through neutral arbitration. Indian auto retail also plays an important role in the national economy and would draw your attention to the fact that - Auto retail contributes to the Central & State Exchequers by way of various taxes to the tune of INR 35,000 crores; Provides direct employment to over 5 lakh people; Has a total annual turnover of about INR 200,000 crores; and Has made investments over INR 35,000 crores in dealerships including workshops. As Edward Tonkin, Chairman, NADA said at the recently concluded Auto Summit 2010 that dealership model is not widely understood so the governments should be properly educated for them to be able to help. For this, our dealer friends should come forward and actively participate to make G10 and G20 programmes successful. Looking forward for your views and suggestions. With best wishes, Yours sincerely, S P Shah