India’s Auto Industry Is Set For Volatile Times

FADA says they are sitting on extremely high levels of inventory, over 2 months. Sales were already down around 7% in June

11 July 2024 12:30 AM GMT

On Episode 336 of The Core Report, financial journalist Govindraj Ethiraj talks to Prashanth Agarwal, Partner, Indirect Tax at PwC India.

Our Top Reports For Today


(00:00) The Take

(03:11) Stories Of The Day

(03:53) Markets take a breather and brace for the budget

(05:37) India’s Auto industry is set for volatile times

(09:48) Why Maruti Chairman RC Bhargava is going after Tata Motors

(1404) Why businesses want simpler Goods & Service Tax rules

NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.


Good morning, it's Thursday, the 11th of July and this is Govindraj Ethiraj broadcasting and streaming from and headquartered in Mumbai, now recovering from an extremely heavy dose of rainfall over two solid days.

For those of you who reached out asking about yesterday’s show, yes, I was under the weather and could not record yesterday. Am still recovering as it happens. Thank you for reaching out though.

But here I am and here is our short take.

The Take

If you were to believe the Reserve Bank of India, something few apparently do, for at least this set of numbers, India created around 47 million jobs to a total of 643 million jobs in the last year.

This came on the heels of a Labour Department release that India created 20 million new jobs since 2017, as opposed to a Citigroup research report that said only around 9 million jobs were added each year since 2012.

If the RBI’s figures are anywhere near accurate, then all problems are solved and we can quite literally go home.

Amit Basole of the Centre for Sustainable Employment at Azim Premji University has a simple explanation for this.

He says in a Reuters report that what is clear is that there is a large increase coming from agriculture and from self-employment, which includes own account work or unpaid family work.

But this jump in employment cannot be equated to the creation of formal jobs with regular wages, Basole said, going by detailed data available up to the financial year 2022/23.

Remember, all this comes on the heels of GST data which after being screamed from the rooftops has now been moved to informal releases by unnamed officials in the Ministry of Finance.

This of course comes at the same time as GST collection figures fell for the month of June, to Rs 174,000 crore. Contrast this with the April figure of Rs 210,000 crore and perhaps you can imagine why the sudden silence.

But why should it be like this ?

Data should be released when it should be released.

India is seeing among the worst food and vegetable inflation figures in a while. Food inflation is closer to 9% and vegetables are around 27%.

At this point, by the way, economists are projecting a slight but an overall increase in inflation for the month of June, figures that are awaited.

We are not, as I can see, suppressing or twisting or massaging these figures. Of course we have the advantage of checking the latest TOP prices, that is tomato, onion and potato to get a sense.

My argument is that holding back numbers or playing with their frequency causes considerable damage to credibility.

Releasing the correct numbers, whichever aspect of the economy or nation it might be, on time is most critical. Even if it is bad, people will digest and move on.

Fudge, hide or duck or release numbers suddenly, ostensibly to counter some data that you don’t agree with, makes it a most retrograde response and most unbecoming of a large and ambitious economy.

It also betrays a lack of confidence in our economy, our businesses, entrepreneurs and workers who toil day and night to make their lives and the country’s future better.

Whether it is census data or GST or any other data, we should release them on time and also not come up with wild, shape shifting definitions, the way RBI seems to have done.

Markets Take A Pause

The stock markets took another much needed pause.

Markets are of course focussed on the Union Budget slated for July 23, an event I may not be able to cover comprehensively as I am overseas for a conference but will keep you updated before and after.

So, the Budget as it stands is poised to deliver very little by way of blockbuster positive news and nor should that be expected.

Some sectors might get some relief here and there, parts of automotive being one, given some of the hectic and high powered lobbying we are seeing and I will come to that in a moment.

Going by veteran market players already pleading that the Government should not touch capital gains tax on sale of shares, which is that the Government should not increase it, I am sensing that there is more worry than expectation. Not surprisingly again.

On the other hand, no news is good news is what I would recommend the approach be.

The BSE Sensex index fell 916 points intraday, before ending down 427 points at 79,925. So it's back below 80,000.

The Nifty50, was down and then up, down finally 109 points or 0.45 per cent.

M&M, one of the top performing stocks in the markets this year, was down 6.6 per cent, was the biggest dragger on the benchmark indices, followed by Tata Steel, TCS, SBI and HCL Tech.

Mahindra’s price reacted to a price cut in its popular SUV the XUV 700 by 10%.

Tata Motors has also cut prices of its SUV.

There is some churning for sure going on in the automotive market right now.

The FADA who I speak to says they are sitting on extremely high levels of inventory, over 2 months. Sales were already down around 7% in June.

High levels of inventory must give way to discounts to start moving cars out of the dealer’s parking lots.

FADA also says store walk-ins were low because of heat waves which in turn resulted in lower sales.

Be that as it may, there may be more to consumer buying behaviour right now.

Stock prices will respond to all of this in coming months.

Elsewhere, Asian Paints and Berger Paints have increased prices last week very slightly.

The price increase has led to stock prices of Asian Paints going up.

In the broader markets, the BSE MidCap, and SmallCap indices declined nearly 2 per cent each intraday and ended down.

Oil Prices Move Down

Oil prices have been soft in recent days, having gone up after dropping on concerns about Chinese demand and continued uncertainty over the timeline for Federal Reserve interest-rate cuts.

Brent bounced off of $84 a barrel to trade little changed, having fallen in the three previous sessions, Bloomberg reported.

The American Petroleum Institute said crude stockpiles shrank last week. Inventories posted a hefty decline a week ago.

In China, the largest oil importer, data on Wednesday underscored the nation’s economic challenges, with deflationary pressures persisting as factory-gate prices fell.

On the other hand, Russia’s weekly crude exports crashed by the most since before the 2022 invasion of Ukraine in the seven days to July 7, with the less volatile four-week average falling to the lowest since February, Bloomberg reported.

There was no clear cause for the slump in shipments. There were no gaps in loading programs to suggest maintenance work and no reports of storms affecting the berthing or loading of vessels.

But shipments were down week-on-week from the Baltic, the Black Sea and the Pacific.

This may be to do with ships which are sanctioned by the West not picking up the crude and some appeared to be parked and not picking up crude from Russian ports.

Bloomberg said flows on ships signalling destinations in India averaged about 1.75 million barrels a day, down from the revised figure of 1.78 million for the period to June 30.

The India angle is important because oil must have been a key part of discussions in a recent meeting between India's Prime Minister Narendra Modi and Russian President Vladimir Putin in Moscow.

India has benefited hugely from cheaper Russian crude in the last two years though how much of this discount will continue is not clear. India is the second biggest importer of Russian oil after China as per reports.

Both the Chinese and Indian figures are likely to rise as the discharge ports become clear for vessels that are not currently showing final destinations.

Interestingly, the equivalent of about 170,000 barrels a day was on vessels signalling Port Said or Suez in Egypt.

Those voyages typically end at ports in India or China and show up as “Unknown Asia” until a final destination becomes apparent.

Hybrid Versus Electric

There is a big battle building up and it usually gets interesting when Maruti Suzuki Chairman RC Bhargava steps into the fray, usually with gloves off.

He told Business Standard that hybrid cars need more tax benefits. Suzuki and Toyota are the only hybrid car makers right now.

According to Bhargava, an auto industry and Maruti veteran, Tatas and others are opposing hybrids because they believe it will cut into their electric car sales.

Bhargav has argued, as has Toyota for example globally, that electric is still a way off when it comes to greater penetration

And hybrid is a good intermediate step since it also helps reduce emissions.

Of course consumers are already voting with him, with hybrid car sales now overtaking electric cars in India.

There are other reasons too, including the fact that the initial adoption phase of electricity is slowing down in India as it has in the rest of the world, though at higher levels. China may be one of the few exceptions right now.

Bhargav says even on the most optimistic projections, pure play electric vehicle penetration should hit 40 per cent by 2034. Even based on the current policy, 60 percent of the cars will still be ICE powered. What it means is that we will have more ICE cars being sold in 2034 than we have today and carbon emissions will actually go up.

Until we encourage other non-ICE technologies so that petrol and diesel cars become negligible, you cannot solely rely on battery-powered electric cars.

Incentives should be based on how each of the technologies contribute to achieve these twin objectives — whether it is EV, hybrid, CNG or bio gas.

It’s a fair and transparent formula. You cannot give incentives to only one technology — it is not working based on the low sales penetration of electric cars. The global trend is towards multiple use of technology to reach the carbon emission objectives.

Bhargav also told Business Standard that at present, hybrids emit less carbon despite using fuel than pure play electric cars.

That is because EVs have to be charged and 76 per cent of the country’s electricity is still coal-based and not renewables.

This is in contrast to Europe where the electricity generated is far cleaner with 30 per cent coming from coal-based power. In India, the share of renewables in the last decade has gone up by 4-5 percentage points only.

In Europe, the tax differential (VAT and carbon tax) between an ICE and a hybrid vehicle is only 1 per cent as VAT is the same. It is similar in Japan too.

But in India, the differential is a staggering 38 per cent between the two--the total tax burden is 43 per cent on hybrids compared to 5 per cent on electric.

Meanwhile Moneycontrol reports that the upcoming budget may have a proposal to reduce taxes on such vehicles.

According to sources, the finance ministry is considering a proposal from the Ministry of Heavy Industries to remove the 15 percent cess currently imposed on top of the 28 percent Goods and Services Tax (GST) on Hybrid Electric Vehicles (HEVs).

The proposal, if implemented, will provide a strong boost to sales of hybrid cars in the country, as it will reduce the tax differential between hybrids and electric cars. The move will also coincide with the Uttar Pradesh government’s recent announcement of a road tax waiver for hybrid cars.

Before 2018, hybrids were treated similarly to battery-operated electric vehicles and were eligible for incentives. However, in 2018, the government differentiated between the two categories by removing tax benefits from hybrid vehicles, resulting in a total tax rate of 43 percent (28 percent GST plus 15 percent cess).

In that time period, the GST Council has reduced rates on electric vehicles from 12 percent to five percent.

Elsewhere, CNBC reported that


shares dipped Wednesday after the company issued an overnight profit warning and announced it was considering the potential closure of an Audi plant in Brussels.

The company has now lowered the forecast for its operating return on sales to a 6.5% to 7% range, from 7% to 7.5% previously.

It noted that it is also considering the restructuring or potential shutdown of its Audi plant in Brussels, where it employs 3,000 people, on the back of weak demand for the Audi Q8 e-tron line — a fully electric offering from the brand, launched in 2019.

Goods & Service Tax Wish List

The Union Budget is coming up July 23 and we will speak to a range of tax experts.

Let's kick off with the interesting one, which is Indirect Tax which all of us pay regardless of how much direct tax, linked to income that we pay.

There are two or three parts to this.

One is of course rates but the other key part is what businesses are saying.

I spoke with Prashanth Agarwal, Partner, Indirect Tax, PWC and began by asking him about his wishlist but also what were his clients’ greatest expectations.

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