Representatives of the automobile industry met Finance Minister Nirmala Sitharaman last week in Chennai and sought a lower Goods and Services Tax (GST) to help tide over the current crisis in the sector. And while the Union Minister assured them that the matter will be taken to the GST council, a state government representative tells TNM that this move would come at a social and economic cost.
Across the country, the auto sector is facing a crisis not seen in the last 20 years, with plummeting car sales and as a result, over two lakh job losses. Data from the Society of Indian Automobile Manufacturers (SIAM) shows that 300 dealerships have shut down in recent times. Tamil Nadu's capital city, once dubbed the 'Detroit of Asia' due to its burgeoning automobile manufacturing units and allied industries, has also seen a decline in sales and loss of jobs for contract workers.
Automobile manufacturers suggest that a reduction in GST could provide relief in the face of a crippling slowdown in demand. But talking to TNM, a senior officer in the Industries department says that GST cannot be blamed for the existing slowdown, be it in the auto or textile industries.
"I am not in favour of GST reduction on auto. The slowdown is because people have no credit available and also partly due to BS (Bharat Stage) VI transition," he tells TNM.
Bharat stage Emission Standards (BSES) have been instituted by the Centre to regulate the output of air pollutants from internal combustion engines and spark-ignition engines equipment, including motor vehicles. Stage VI with revised rules is set to be implemented from April 2020, which would mean that vehicles now being made by automakers should comply with the BS-VI norms.
"In textiles, the problem is not GST rate but the fact that many firms that were earlier operating below the tax radar has now been forced inside due to the nature of GST. Also, lack of FTA with Europe and US has affected our export competitiveness," he adds.
He further points that reducing GST will affect revenue.
"GST reduction is a loss of revenue for both centre and state, which will have its effect on government expenditure. Budget in defence, salary, pension and interest payments cannot be touched. So invariably it will eat into funds available for some welfare scheme or infrastructure," he says.
Even if there is a GST reduction, the official is of the opinion that it should be limited to two-wheelers and three-wheelers. The move, says the official, will help the lower middle class. The GST council is set to meet next on September 20.
When asked what the state government plans to do then, to address the slowdown, he says, "I don't see a major role for state government when the slowdown is a national phenomenon. At best it can do direct cash transfer to boost rural demand, which we periodically do under one guise or another. Policy-based interventions of state government such as investor promotion, or skill training will take at least 2-3 years to show results."