Mahindra asks govt to reduce GST, registration charges as auto sector limps

Mahindra & Mahindra on Wednesday reported a 52.56 per cent decline in consolidated profit after tax to Rs894.11 crore in the first quarter ended 30 June due to lower volume growth.

While the government needs to guard its revenue sources and stick to fiscal responsibility, Mahindra said, the auto slump is a threat to government’s fiscal arithmetic, adding that a revival of the auto industry would lead to a revival of freight, leading to a revival of truck sales and government’s revenue as well. 

“The most obvious and welcome first aid would be some temporary relief on the GST front, either by modifying the slabs, or, if that is not possible, by removing the cess," Mahindra said at the company’s 73rd annual general meeting (AGM) in Mumbai. “Another suggestion would be a re-look at the registration fees, which have gone up very substantially and a roll-back of the increases in road tax mandated by state governments after the introduction of GST. I’m hopeful that these few actions along with the traditional post-monsoon revival will set us back on track and positively impact the economy."

However, Mahindra said he understood the government’s scepticism on giving GST concessions. “I can well understand the government’s hesitancy in looking at GST concessions. But there is a paradox here. The auto industry contributes revenues of upwards of Rs180,000 crore to government treasuries. The paradox is that while the government needs to be lauded for its fiscal responsibility, the current slowdown in the auto industry poses a greater threat to the financial arithmetic."

Citing Siam estimates to highlight the impact auto industry slowdown on tax collection, Mahindra said, “The slowdown has resulted in an 8 per cent loss in GST collection in the first six months of 2019. Just to catch up with the FY19 GST collections, the auto industry will need to grow at a rate of at least 7 per cent in the remaining eight months of the FY20."

He called the auto industry “a living, breathing ecosystem that has economic and social repercussions well beyond the number of vehicles sold."

“In India, it constitutes 7.1 per cent of the GDP, and 49 per cent of the manufacturing GDP. Inclusive of its value chain, it supports almost 37 million jobs. Its ecosystem runs wide and deep," said Mahindra, stressing the auto sector is a key driver of the economy in almost every country “with a huge multiplier effect".

Mahindra said a revival of the auto industry would lead to a revival of freight, leading to a revival of truck sales. “All this revival would lead to the revival of jobs and hence, consumption. In a virtuous cycle, that would get us closer to the $5 trillion economy, which is our common goal," he added.

Mahindra also said the auto industry needs credit support for suppliers as well as dealers. “On the resource side, we need support for wholesale and retail financing. On this front, I think all the right steps are being taken. The rate cuts necessary for revival have been put in place and the future looks brighter for our stressed NBFCs. I am confident that these measures will bear fruit, creating greater liquidity for NBFCs, which will ultimately make its way into the hands of the consumer. I would appeal to lenders to take a more supportive approach to the suppliers and dealers, who are the backbone of the auto ecosystem," he said.

Mahindra, who has backed the government push on electric vehicle adoption, said making India a global manufacturing hub for EVs is “a clear and achievable goal."

Addressing the company's 73rd annual general meeting, Mahindra said there is a "tectonic shift" occurring in the industry and the time is ripe for that shift. He said that the task of going all EVs is achievable and India has the potential to become a hub for these vehicles. "To come back to the joint road-map, I can see a clear and achievable goal to make India the global hub for EVs," Mahindra said. 

He also said that the company is investing Rs12,000 crore for capex over the next 3 years in addition to an investment of Rs6,000 crore in its subsidiaries over the same time. M&M will be investing a total of Rs18,000 crore over the next 3 years. 

Commenting on the government's EV push, Mahindra told shareholders, "Why should it come as a surprise that the government is putting all its weight behind the introduction of EVs." 

The company already has the electric version of its Verito sedan and it will bring out at least three more e-four wheelers in another two and half year said Pawan Goenka, managing director, M&M at the announcement of the Q1 earnings. 

"It's worth mentioning that our performance has been better than the performance of the industry, across all the sectors in which we operate. "In the three-wheeler segment, industry de-grew 7 per cent and we only de-grew 2.4 per cent; in commercial vehicles, we were slightly better than industry (9.4 per cent vs 9.5 per cent degrowth) and in passenger vehicles, while industry de- grew 18 per cent, we de-grew less than 2 per cent," said Mahindra. Although the industry has been facing challenges so far, we are now experiencing the full bounty of the monsoons, he said.