Crude Oil Price Blues
Pradip R Kamdar, President
Dear friends,
Quite a few developments in the recent past have left me and, rather, all of us somewhat cold and scary. This has, in turn, put a damper on our hope for auto sales regaining momentum in the current financial year, a glimmer whereof was seen in the month of April and, to a lesser degree, in May 2008.
The scourge of spiralling global crude oil prices has reared its ugly head once again. In fact, it is a major oil shock confronting the world community. The crude oil prices hovering around $ 135 per barrel have almost doubled in the last one-year. The unabated rise in petroleum prices in international market has direct, immediate adverse impact or auto market. What is more worrisome is that the prices show no sign of stabilising, leading to a great deal of uncertainty. There are wild forecasts emanating from various quarters that crude oil prices may touch $150/barrel or even $200 mark.
With oil marketing companies bleeding under the burden of rising international crude oil prices, it became a well nigh impossible for the Government to hold the price line of domestic petroleum products. Therefore, few were surprised when the Government, after a lot of dilly-dally due to inflation already ruling at dangerous level, announced the increase in prices of petrol, diesel and LPG by Rs. 5, Rs. 3 and Rs. 50, respectively. Simultaneously, the State Governments were urged to rejig the taxes at State levels on petroleum products to soften the impact of price hike on ultimate consumers, which quite a few State Governments did. It is unfortunate that some of the political parties have sought to score brownie points out of the difficult situation the country is faced with, by opposing the price hike.
Another discomforting aspect of the economy, which is equally hurting the auto industry, is runaway inflation. There is no gainsaying that the hike in fuel prices was expected to stoke inflation already hovering around 9% - well beyond the Government's target of less than 5%. The Government estimated the fuel price hike to have a moderate impact of 0.6% on prices, though. Transporters were the first off the block and announced freight increases in the range of 8% to 15%. Inflation, post fuel price hike, has risen to a 13-year high of 11% and set the alarm bells ringing.
Monetary measures taken by RBI with a view to containing inflation have added to the woes of auto market, with banks applying squeeze on auto financing and increasing interest rates. The recent intervention by the apex bank to increase Repo rate by 25 basis points to 8% is likely to raise the interest rate further on auto loans, while we are hoping that the banks will absorb this increase and will not pass it on to the customers. Volatility in global petroleum prices and high inflation in general are hitting the auto industry in particular, very hard.
As if fuel price hike and high level of inflation in general were not enough to turn the sentiment downbeat, the recent hike in excise duty on bigger cars by Rs. 15,000 - 20,000 has dealt a further blow and depressed the mood further. In nutshell, the situation is not that encouraging.
Adverting to the auto market, we have got off to a reasonably good start, while the pace is, far short of the excellent run the industry enjoyed during the period 2003-07. As the petroleum price rise is yet to sink in, it may be difficult to assess its impact on auto industry at the moment. One thing is for sure that we shall not be able to repeat the performance of the years 2002-03 to 2006-07 in the current fiscal with the kind of situation we find ourselves in at present. I am sanguine that these are passing clouds and disappear soon. At the same time, I have a word of caution for my fellow dealers that we have to dig in to tide over this difficult, but not hopeless, situation. We cannot afford to loosen our grip. Sometimes, adversity brings forth the best out of us and is a blessing in disguise.
I am sure, the Indian auto industry and retail trade will stand up to the challenge of oil shock confronting us today. The frugal engineering skills of Indian auto industry have already been acknowledged worldwide. We are going to see redoubling of such efforts. I am hopeful that the Indian auto industry will not only keep the costs under check in the face of rising input costs and alarming level of inflation, but will also come up with more fuel-efficient, environment friendly and alternate energy driven vehicles to tide over the oil shock and keep the momentum going.
Similarly, I am sure, we in retail auto trade will step up our efforts to streamline our operations and improve productivity.
If the past experience is anything to go by, the Indian business has acquitted well under adverse conditions.
The recent case in point is the figures of industrial production for the month of April. Against high inflation, input costs and interest rates, the industrial output staged a recovery of sort by recording a growth of 7% in April 2008 vis-à-vis the revised figure of 3.9% for the month of March 2008. What I am trying to drive at is that there is a silver lining in every cloud, which sustains our hope and inspires us to persist with our efforts. While dark clouds are looming over the horizon, I am sure, we shall prove equal to the challenge.
Coming to the activities of FADA since my previous column, we had scheduled a regional meeting along with the Council Meeting of FADA for 6th June 2008 at Kolkata. The meetings, unfortunately, had to be called off due to Bandh called by the political parties in West Bengal in protest against the petroleum price hike.
It is now proposed to organise the Council Meeting and Regional Meeting at Hotel Le Meridien in Ahmedabad on 5th July 2008. We have not held meeting for quite some time now for one reason or the other. As such, there is a long agenda before us for discussion at the Council Meeting. Besides, statutory matters, such as, approval of annual accounts and finalisation of annual report for the next AGM as well as the date and venue of the next AGM are also proposed to be taken up at the Council Meeting. Similarly, there are a number of issues of concern to automobile dealer fraternity in Gujarat, e.g., registration of vehicles at dealerships & other registration related matters, surcharge over and above VAT of 12.5% levied in Gujarat, which we intend to take up with the State Government authorities at the proposed Regional Meeting at Ahmedabad.
I would request my fellow dealers in Gujarat to let us know in advance the issues they would like to be raised at the meeting with the Government authorities so that we are well prepared and structure our interactive session accordingly. In fact, it would be my pleasure if all automobile dealers in Gujarat and surrounding areas could make it to the meeting. The detailed programme is published elsewhere in this issue.
I look forward to your valuable suggestions and inputs.
With best wishes,
Yours sincerely,
Pradip R Kamdar |
