Challenging Time Ahead Nikunj Sanghi, President Dear friends, Our apprehensions are turning out to be true. May 2011 was the third consecutive month of lacklustre growth in vehicle sales. The sales numbers trotted out by manufacturers still look decent, if not healthy, on the face of it. However, retail sales are not something to rave about. Inflation and the increasing interest rates & petroleum prices seem to have put a damper on the market sentiment, as was being widely apprehended. The current macroeconomic indicators are somewhat mixed and are not enthusing either. The GDP growth in Q4 of FY'11 fell sharply to 7.8% as against expectation of 8.2%. The advance estimates of GDP indicate that the Indian economy grew by 8.5% in the previous fiscal - a shade short of 8.6% growth projected by the Government. Inflation fuelled by all-round rise in commodity prices globally remains the key concern. The headline inflation at 8.66% in April 2011, though lower than over 9% in March, is still sitting above the RBI's comfort level of 7%. The impact of recent Rs. 5 per litre increase in petrol prices on inflation is yet to become visible and may make things worse. This leaves a further room for the apex bank to raise the policy rates to combat inflation that has assumed a top priority for the RBI and the Government even at the cost of little lower growth. Industrial growth has been tapering off due largely to high commodity prices and rising interest rates. Industrial production growth declined to none-too-flattering 5.5% in Q4 from over 11% in Q1 of 2010-11. Likewise, core sector that is a measure and lead indicator of manufacturing activity grew slowest in 5 months at 5.2% in April. 8.5% GDP growth in the year gone by was made possible by 6.6% agriculture growth, a six-year high, which neutralised slower industrial growth. While Indian economy managed to clock a growth of 8.5%, the figure conceals more than what it reveals. The disaggregated figures show that the persistent tightening of monetary policy is surely leaving its imprint on industrial performance and investment environment. The investment growth in Q4 of the last fiscal was mere 0.4%. Going forward, there are discernible headwinds to domestic growth momentum - rising interest rates, accelerating input costs and continuing uncertainty over global economic scenario. However, the scenario is not as bleak as it is made out to be. The exports have shown a remarkable resilience and grew by over 34% in April, continuing their excellent run for the last 20 months. However, considering the slow recovery in West and triple disaster 3 months earlier in Japan, economists and industry believe that it would be difficult to sustain such a healthy growth in exports during the remainder of the year. Secondly, tax collections in the first two months of the current fiscal have risen by 37%, though the true impact of slowdown in economy will be known when the companies pay their advance tax. The Centre has been able to rein in fiscal deficit at 4.68% of GDP during the year 2010-11, much lower than the projected 5.1%. Thirdly, notwithstanding the bearish business sentiment and uncertain global scenario, the domestic demand remains robust, led by growing rural aspirations and spending. This partially explains the steady growth in two-wheeler sales that continue to be strong and show no signs of wearing down. Economists, by and large, are of the view that the slowing of demand and investment growth is a short-term trend due to uncertainty over the global economy combined with the RBI's monetary policy. India is expected to return to the high growth trajectory in the second half of this financial year. Factoring in a number of growth drivers still at work, the Indian economy and auto market are likely to see this uncertain period through to record a decent growth in this year. Therefore, we, in FADA, feel that auto market should be able to clock a growth of 15% in 2011-12 with demand picking up from September onwards. While there may not be buzz in the auto market at the moment, things are moving at fast pace in FADA. We are in the thick of action and have a hectic schedule ahead. In my previous column, I had announced the scheduling of 7th biennial convention of automobile dealers, i.e. Auto Summit 2012 for 9th & 10th January 2012 at New Delhi, coinciding with Auto Expo. I am glad to inform that the preparations for this mega event have started in right earnest. It is our privilege and honour that Mr Anand Mahindra, Vice Chairman and MD, Mahindra and Mahindra has kindly agreed to grace the occasion as our Chief Guest at the formal Inaugural Session on 10th January 2012. There is no gainsaying that Mr Mahindra, a leader in his own right, has steered the Indian automotive industry to a new high in terms of global standards of quality & reliability as well as India's R&D and engineering capability. He has proved that homegrown vehicle manufacturers stand on equal footing with the auto majors in rest of the world. Therefore, we could not have asked for more. As you are aware, FADA jointly with Auto Monitor had instituted Automotive Dealership Excellence Awards (ADEA) in 2009 to recognise and reward my fellow dealers who excel in various areas of dealership management, CSR and community service. The idea underlying these awards is to bring forth the best practices adopted by dealerships and the social work being carried out by some of the members of automobile dealer fraternity across the country. This gives an opportunity to other fellow dealers to adopt such practices, promoting all-round excellence in auto retail. The first two editions of ADEA were grand success and evoked encouraging response. Buoyed by the success of previous editions of ADEA, we have set in motion the process for the 3rd edition of Automotive Dealership Excellence Awards. Entries for the nomination are open. I urge my fellow dealers to participate in ADEA 2011 overwhelmingly to make sure that the awards truly represent the excellence in auto retail. Needless to mention, service tax in India is still evolving and there are a number of grey areas open to varied interpretations. Automobile dealers are, time and again, caught napping when confronted with sudden demand notices for payment of service tax, from tax authorities at the local levels. It is not the case that the tax authorities always have valid claims. In a recent case involving my fellow dealers in Nagpur, local tax officials in Nagpur slapped unjust demand of service tax on the total bill of repair or service including the value of parts and goods sold/replaced during service/repair of vehicle. The matter was taken up by FADA with CBEC. I am happy to inform that CBEC has clarified to the field formation in Nagpur that the value of goods and parts replaced during service/ repair of vehicles, which are subject to VAT, is not to be included in the taxable value for the purpose of levy of service tax. Keeping in view the complexities of service tax law and procedures, which automobile dealers, at times, find it time-consuming and difficult to cope with, FADA has appointed a Service Tax Consultant to guide members of FADA on various issues relating to service tax that may be raised by them from time to time. A separate announcement in this regard was published in the previous issue of this Journal. The announcement is published again for the benefit of my fellow dealers, elsewhere in this issue. Virtually, all automobile dealers in various parts of the country are faced with acute shortage of trained manpower. The problem is compounded by poaching by fellow dealers and other sectors such as finance, insurance and organised retail. To address this problem in long term, Automotive Skills Development Council (ADSC) with SIAM, ACMA and FADA as Founder Members has been formed under the aegis of National Skill Development Corporation (NSDC). While the formation of ASDC may not resolve the problem immediately, we have to start somewhere as the problem is going to become acute with economy and auto market expanding. ASDC also throws in a business opportunity for automobile dealers who are running educational & training institutions. Any member of FADA interested in joining hands with ASDC for conducting training courses aimed at catering to the manpower needs of auto sector, is welcome and may send his/her proposal to me or FADA office at New Delhi. FADA Council is scheduled to meet on 25th June 2011 at Chennai. Hopefully, many new ideas will emerge from the discussion. Meanwhile, if you have any input or suggestion, feel free to write or speak to me. With best wishes, Yours sincerely, Nikunj Sanghi