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ACMA 59th Annual Session - Call for uniform GST

20/09/2019 | Author: Autoguide | 0 Comments Back To Home   < Previous News   |   Next news >

Mr Ram Venkataramani, President, ACMA

Govt intervention sought for smooth transition to BS-VI
A strong pitch for standardised rate for all auto components was made at the 59th Annual Session of the Automotive Component Manufacturers Association of India (ACMA), held in New Delhi on September 6.
Addressing the session, Mr Ram Venkataramani, President, ACMA, and Director, Amalgamations Group, said the GST Council must think of a standardised rate for all components as right now high-value parts and components attract a higher GST rate of 28 per cent while components like brakes, muffler and wheels have 18 per cent GST rate. “There should be a uniform GST rate of 18 per cent for all products”, said Mr Venkataramani. 
The Minister of State for Finance, Mr Anurag Thakur, who was the Chief Guest at the event, said the next GST Council meeting will take place on September 20, where the decision on GST rates on automobiles could be taken. However, he added that that the Council will discuss unanimously about the entire auto sector.
A report by management consulting firm McKinsey & Company, titled ‘Embracing the discontinuities in India’s auto component industry’, was also presented at the session. The report noted the primary challenges facing the industry, the foremost being how the auto component manufacturers can best manage the ongoing slowdown.
Spelling out some concerns of the component industry, Mr Venkataraman, in his address, said, the first and foremost is with regards to managing the transition from BS-IV to BS-VI.The component industry, he said, has invested heavily in BS-VI technologies as also in capacity creation and this has led to increased fixed costs and higher break even points. A small drop in revenue now leads to an exaggerated drop in bottom line.
In addition there is a concern on BS-IV inventories through the supply chain especially with Tier-2s and Tier-3s who constitute 70 per cent of ACMA’s 800-plus membership. “We request that through close coordination, these inventories, with regular payments at stable prices will help us through these difficult times. In today’s tough conditions, illiquidity can lead to insolvency and this could jeopardise the entire supply chain”, said Mr Venkataramani. 
He requested that the local supply chain be encouraged to localise especially in areas where local capability exists and can be enhanced.
Mr Deepak Jain, Vice-President, ACMA, and CMD of Lumax Industries, said the Government was looking at the auto sector holistically and the industry was hopeful that GST revisions will be considered on both automobiles and auto components.
Speaking at the ACMA session whose theme this year was ‘Future of Mobility: Embracing the Discontinuity’, the Society of Indian Automobile Manufacturers  sought the Government intervention to help the sector in smooth transition to Bharat Stage 6 emission norms from April next year.
SIAM President Mr Rajan Wadhera said that vehicle manufacturers and component suppliers were on track to meet stricter emission norms, but expressed concern over the availability of BS-VI fuel cross the country. “The transition is very abrupt. On March 31, both manufacturing and sales (of BS-IV vehicles) will stop. This has never ever happened in anywhere in the world,” he said, adding, “it is very difficult to predict sales and plan inventories in such a way to have zero inventory at the end of March.”
Mr Wadhera also urged the Government to take a swift decision on GST reduction on vehicles ahead of the festive season. “We have an issue at hand with the festival season, where 15-20 per cent of the sales happen. The revival of sentiment is very important”, he said.
In addition, auto component makers and dealers made a strong case for reporting retail sales numbers instead of wholesale despatches, stating that the move will help suppliers align their production with the actual demand.
Mr Guenter Butschek, CEO & MD, Tata Motors, noted that in order to build confidence with the customers and the Government, “we need ‘one voice’ on technologies.” He added that the demand environment is going to remain volatile for some time, and the Indian opportunity is about to collapse due to the low economic activity, leading to subdued demand initially triggered by liquidity crisis, and increased axle load regulation. “We need to take these challenges as opportunities and explore feasible options for us and the industry, because that is the need of the hour,” he said. 
Mr Kenichi Ayukawa, MD & CEO, Maruti Suzuki India, said that local manufacturing of auto parts would not only help Maruti Suzuki, but also support the Government’s Make in India initiative. “If anybody can make electronic components and some key parts in India with quality and reliability, it will not only help Maruti Suzuki, but the entire Indian auto industry,” he said. The best opportunity to win in the future lies in developing in-house research and development (R&D) capability, he concluded.
The McKinsey report released at the session, noted there are three reasons for the faltering sales performance of the industry. First, it said the liquidity crunch for NBFCs has limited their power to lend to dealers and consumers. NBFC auto loans dropped 69 per cent in Q4 of FY19, compared to Q4FY18. Secondly, the increased acquisition cost of vehicles is deterring buyers. The price figure, said the report, is rising because of an increase in raw material prices and finance costs and the mandatory multi-year insurance premium that consumers must pay upfront. Lastly, weakened consumer sentiment is slowing down purchases. There was a 14 per cent drop in consumer sentiment towards increased spending between May 2018 and May 2019. 
While these factors have hurt vehicle sales in the present, the long-term growth story for the automotive industry could remain intact, the report noted. Several macroeconomic indicators such as growth in GDP, private consumption and rising urbanisation inspire confidence that sales performance could improve again.
The report then talks of opportunities to address the downturn, which requires a coordinated set of actions in the short term, along with strategic moves in the long term. The following are the recommendations given in the report:
--Optimise parts complexity and modularise products: Leverage the current slowdown and OEM consolidation trend to reassess the design of key components and develop modular parts. 
--Enhance quality, aim for zero defects and higher yields: Build quality into operations, management and people systems. 
--Optimise portfolio, look at the rail end: Rationalise portfolio to ensure a maximum of 10-15 per cent revenue from a single product, channel or geography.
--Develop optimal inventory control and build transparency: Develop internal models (leveraging analytics) to plan production and control inventory, instead of depending on OEM forecasts.
--Revisit the organisation structure to find efficiencies: Build a task force to conduct value stream mapping.

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