The Centre has promised to look into the demands of the ailing auto sector and has decided to push infrastructure investment by public sector units. These are steps in the right direction. The flagging economy has not instilled enough confidence among consumers to make big ticket purchases such as cars and houses. Car sales have shrunk by more than 30% in the month gone by.
On Thursday, the Centre indicated it will at least consider demands that GST on vehicles be reduced. It is now at 28%, one of the highest rates in the world. For example, GST on cars stands at 6% in Malaysia and a comparable Value Added Tax in Germany is at 19%. China too has cut its VAT for the manufacturing sector from 16% to 13%, prompting car makers to lower prices. India too can think along the same lines.
Many state governments, which stand to lose revenue and large numbers of jobs in the sector if car sales do not pick up, are believed to be willing to support the move in the GST Council. Other states can also be persuaded as automobiles are no longer a luxury but rather a necessity. The auto sector in India today is one of the largest globally and accounts for over 7.1% of India’s GDP and nearly 22% of the country’s manufacturing GDP.
The Centre has to help revive the sector. It is undoubtedly true that mere tax cuts could lead to beggaring the government without giving the much-needed relief to the economy. However, a judicious combination of tax cuts in key sectors and priming of the economy through planned capital expenditure is possibly the only way out of the current quagmire. The Centre is believed to have asked public sector units to accelerate their plans to spend on capital expansion and greenfield projects, if need be by borrowing from external markets. While this is a welcome step, the Centre should also possibly think of complimenting this with large scale infrastructure spending of its own. It has indeed been talking about it for some time, without really putting the money where its mouth is.