FADA’s Wishlist for the New Government S P Shah, President Dear friends, It is happy to note that a stable Government of UPA led by Dr Manmohan Singh has been formed at the Centre. Having acquired adequate strength in the Lok Sabha, the Congress-led Government, we hope, will get down to the task of governance and address various issues including economic slowdown with a sense of urgency and purpose. Since Congress has got sizable number of MPs of its own in the new Lok Sabha, the Government has the opportunity to carry forward its agenda single-mindedly without being hamstrung by the pulls and pressures of coalition partners. Macroeconomic scenario, while being not enthusing, is not depressing either. Belying forecasts by various multilateral agencies and think tanks, the Indian economy grew by 6.7% during the year 2008-09. What is comforting is that the worst is behind us, as the latest data suggest. The Index of six core industries having a combined weight of 26.7 per cent in the Index of Industrial Production (IIP) and an indicator of the pace of industrial activity registered a growth of 4.3% (provisional) in April 2009 compared to a growth of 2.3% in April 2008. Gross fixed capital formation maintained a relatively steady pace during the year 2008-09. It has been estimated to be 32.2% compared to 31.6% in the previous year suggesting that the investment momentum has been maintained somehow or the other. The confidence is also reflected in the Sensex, which has crossed 15,000-mark. Of course, every silver lining has a cloud behind it. Though there are signs of recovery, some of the key indicators give rise to concerns. Exports continue to witness free fall, while crude prices are on the rise. The manufacturing sector saw its growth rate decline dramatically from 8.2% in 2007-08 to 2.4% during 2008-09. What is worrisome is that it saw an absolute fall of 1.4% in Q4 of 2008-09. The GDP growth rate during the year 2008-09 was shored up, to some extent, by the increase in the salaries of Government & public sector employees. This means that we may have a lower growth number at the start of the new financial year. A lot of work needs to be done in order to take GDP growth in the new year to the region of 7% as announced by the PM. All said and done, overall, the macroeconomic situation should give the new government a lot of breathing space. It can now afford to shift focus from crisis management to many structural problems that plague the economy in order to be back on a fast-growth track. There are a lot of expectations of various segments of the society from the new government. We, in auto retail and service industry, also have our own wish-list that has been put forth to the Government, including the Union Finance Minister, by way of Memorandum of Suggestions. I take this opportunity to touch on some of the major suggestions made by FADA in its Memorandum to the Government. FADA would want the Government to rationalise excise duty at 8% for all types of vehicles, including passenger cars & multi-utility vehicles irrespective of their engine & seating capacity. Currently, the excise duty on bigger cars and multi-utility vehicles adds up to about 25%. Passenger car industry is the key driver of economic growth with multiplier effect of 2.24. Multi-utility vehicles, in particular, are primarily used for transporting people and goods in the rural and semi-urban areas. Differential excise duty based on the engine capacity and size is out of sync with the simplification of tax structure. FADA would like the depreciation allowance on passenger cars to be increased to 33 1/3%, as the product cycle is becoming shorter and the used vehicle prices have crashed. Similarly, Accelerated Depreciation Allowance of 50% for purchase of commercial vehicles allowed up to 30th Sep'09 should be continued for a further period of 2 years. Further, to incentivise renewal of transport fleet and to sustain the tempo of growth, depreciation allowance on commercial vehicles purchased for replacement of + 15-year old vehicles needs to be increased to 60%. In addition, it is necessary that a vehicle life terminal policy be framed in the interest of clean environment and road safety. In order to kick off investments and industrial activity, we would wish corporate tax to be reduced to 25% and additional levies like surcharge & Education Cess removed. Experience has shown that lower taxes lead to better compliance and buoyancy in revenue. Fringe benefit tax has become a major irritant for the corporate sector without significantly increasing the tax revenue for the Government. Therefore, there is a case for removal of FBT altogether. We hope that the National Highways Development Programme that has not made a significant headway during the last few years will gather steam under the new dynamic Union Minister of Road Transport & Highways. However, simultaneously, a thrust needs to be given to the development of urban and intra-city roads and adequate parking facilities within the cities; accordingly, construction and operation of multi-layered parking lots in metropolitan cities should qualify as Infrastructure Project and be accorded the benefit of section 80IA of the Income Tax Act. In spite of coordinated efforts under the auspices of Empowered Committee of State Finance Ministers, the provisions and rates of VAT vary across States. FADA would like VAT on pre-owned motor vehicles to be pegged at (i) 1 % of the gross re-sale value of pre-owned motor vehicles, or (ii) 4% on value addition at the dealer's end, allowing credit for the tax paid on inputs for reconditioning/ refurbishing the motor vehicle. A system of incentives and disincentives needs to be put in place for the States complying with and not complying with the general guidelines of the Empowered Committee on the subject. CST is incongruous with the scheme of VAT. FADA would expect GST to be introduced w.e.f. 1-4-2010 as already announced by the Government in the previous Union Budgets. Pending introduction of GST, CST needs to be reduced to 1 % in keeping with the roadmap for its phase-out. Cumbersome legal procedure for repossession of vehicles in case of default in payment of vehicle loans has made banks and NBFCs wary of lending for vehicle purchase. Conditions need to be created for hassle-free recovery of loans, including the right of financier to repossess vehicle in case of default, to encourage banks & NBFCs to increase their exposure in auto market. Regarding other activities, we are working overtime to give a shape to the programme for FADA's Southern Region Auto Convention scheduled for 18th July 2009 at Hyderabad International Convention Centre. The Convention offers a unique opportunity for automobile dealers especially in Southern Region to share their views and concerns. I look forward to your overwhelming participation at this Regional Meet in large numbers. Please feel free to send your inputs and suggestions. With best wishes, Yours sincerely, S P Shah