This scenario has been a prolonged affair over the past 1.5 years and every automaker in the country is facing diminishing sales. Not only is this scenario noted in the four wheeler segment but also across the two wheeler industry in India.
Rajiv Bajaj, Managing Director of Bajaj Auto Limited, pins this dismal scenario on ‘Over Regulation’ by the Government of India. The upcoming Union Budget 2020 is also not likely to bring in any respite. Speaking at the launch of the new Bajaj Chetak e-scooter, Bajaj pointed out some of the causes that has put the auto industry in its present position.
It all started off with the high insurance costs imposed in early 2019. IRDAI introduced 3 year motor third party insurance cover for cars and 5 year cover for two wheelers. The premium had to be collected for the entire term at the time of getting insurance itself.
Next to come in within a short period of time were the new crash test norms which were quickly followed by compulsory ABS for all two wheelers while now the upgrade from BS4 to BS6 emission norms has put an added burden on the auto industry. Upgrade to BS6 will see prices of two wheelers increase by Rs.6,000-8,000 which is about a 30 percent increase in prices. Bajaj cites that all these regulations were all introduced within a short period of time and the industry was not capable of making all these changes at once.
Industry experts have also cited their concerns for the condition in with the auto industry in India finds itself in today. Auto exports also believe that the higher cost of auto acquisition has impacted the auto industry but that is not the only reason. They also agree with Bajaj that the Union Budget 2020 will not correct this situation. He suggests the removal of non compliant vehicles from the roads which not only contribute to emission and pollution but are also not safe and need to be addressed on a war footing.
However, while experts cite Govt of India’s ‘Over Regulation’ as main reasons for two wheeler slowdown, it should be drawn to attention that this scenario is not restricted to India alone but a challenging auto industry has been noted the world over. This could be due to a change in user habits and changing realities and could result in a paradigm shift.
There are certain avenues which could bring in some respite to the auto industry. These could include an incentive based scrappage of vehicles registered from 1st April 1995 to 31st March 2005. SIAM has proposed that the Government of India should offer an incentive based vehicle scrappage policy which could be in the form of 50 percent rebate on GST, reduction in road tax or 85 percent of the scrap value to spur users to scrap their older vehicles.
SIAM also proposes that the Government should increase depreciation rate for passenger vehicles and 2 wheelers to 20 percent. The FAME II scheme has helped to increase volume of electric buses in the country but more budget allocation to procuring buses with alternative fuels would lead to an increased demand for commercial vehicles. The introduction of BS6 norms will also see cost increase by 8-10 percent which could hamper demand. It is therefore suggested by Rajiv Bajaj, that the Government consider reducing GST on BS6 vehicles from a current 28 percent to 18 percent till demand stabilizes.