The union government will not ban conventional internal combustion engine-driven vehicles to promote electric mobility while also looking at reducing taxes on hybrids to boost demand in the short term, said Nitin Gadkari, union minister for road transport and highways, at the annual convention of the Society of Indian Automobile Manufacturers (SIAM).
Gadkari also said after reducing the Goods and Services Tax (GST) on electric vehicles, the Centre was looking to cut taxes levied on hybrid vehicles to promote zero-emission vehicles.
“Petrol and diesel vehicles will not be banned and the government also does not have any intent to ban anyone. These vehicles needs to attract less tax now as our intention should be to increase sales as the sector needs help at the moment. I have also suggested to the finance and commerce minister if we can also provide some incentives for exports as well," added Gadkari.
The decline of sales of automobiles in India started in July last year, but worsened in the aftermath of crisis at shadow-banking behemoth Infrastructure Leasing & Financial Services Ltd, which led to non-banking finance companies (NBFCs) dramatically slashing their lending.
In the recent past, NBFCs have helped fund nearly 55-60% commercial vehicles both new and used, 30% of passenger cars and nearly 65% of two-wheelers in the country, according to rating agency ICRA.
Passenger vehicles dispatches of top six manufacturers declined 34% year-on-year to 171,193 vehicles in August. Maruti Suzuki’s domestic wholesales in August slumped nearly 36% year-on-year to 94,728 units. This is the third time the company pushed less than one lakh vehicles to its dealerships in a single month since July 2017.
SIAM, the industry lobby group, has sought an immediate cut in the GST rate on vehicles to help revive sales during the crucial festival season. A lower tax rate would allow companies to reduce their vehicle prices, potentially attracting more buyers, it said.
The slowdown in the automobile industry is not only a concern for the industry but also for the government since it has contributed significantly to employment generation in the country. Slowdown in vehicle sales have also hit the auto component industry and hit employment in the sector, said Gadkari in his speech during the convention.
Gadkari’s comments today follow Prime Minister Narendra Modi’s recent interview to The Economic Times, where he said India has a large enough market to accommodate both electric and internal combustion engine vehicles.
Subsequently, the Union government on 23 August announced several measures such as mandating government agencies and departments to replace old vehicles, increasing depreciation on new vehicles for commercial fleet service providers, urging banks to make auto loans cheaper, and increase credit availability to NBFCs.
Finance minister Nirmala Sitharaman also assured buyers and manufacturers that vehicles compliant with Bharat Stage IV emission norms registered before 31 March 2020, will be able to run for the entire registration period of the vehicle.
The likely cut in GST on hybrid vehicles will come as a boost to Japanese vehicle manufacturers such as Maruti Suzuki India Ltd, Honda Cars India Ltd, and Toyota Kirloskar Motor Ltd who have invested in the technology as an interim solution before moving to electric vehicles.
In the wake of a steady decline in vehicle sales, Gadkari today urged automakers to invest in financing arms which will then provide easy loans to dealers and buyers.
He also said his ministry has zeroed in on 68 infrastructure projects worth ₹5 lakh crore for execution and these efforts will help the automobile sector immensely.
“I know that problems with the NBFCs have impacted sales of automobiles but I have request companies to open their respective financing arms which will extend credit," added Gadkari.