The Society of Indian Automobile Manufacturers (SIAM) has cut its forecast for growth in sale of passenger vehicles for the current fiscal by almost half, citing higher taxes and a ban on the sale of large diesel cars in Delhi as the main reasons.
According to SIAM, the segment is now expected to grow between 6 and 8 per cent from the earlier projection for 12 per cent. The demand slowdown has impacted investments in capacity expansion.
SIAM Deputy Director General Sugato Sen said: “We expected low double digit growth but given what has happened in the last few months (measures to curb pollution and additional taxes), the industry is not so confident of that growth.”
He said a consensus of analysts and industry experts shows that a growth of 6-8 per cent looks more realistic.
SIAM even revised the forecast downwards to 11 per cent last month due to a new infrastructure cess announced in the Budget.
The downward revision follows a growth of 7.24 per cent in passenger vehicle sales in the country for the year ended March 2016. This is the fastest pace of growth for the segment in the last five years since 2010-11 when it grew by 28 per cent. This growth was largely driven by new products and heavy discounts on existing car models.
“Parent companies of our members are worried about whatever is happening in the policy space. In the past few months, we have seen no support from the government. We feel their action will curb the growth in the sector,” Mr. Sen said.
In this year’s Budget, infrastructure cess in the range of 1-4 per cent was levied on sales of new passenger vehicles. “Automobiles have become the highest taxed manufactured product (in India). Additional taxes in this Budget dampened sentiment further,” Mr. Sen said.
He said investments in capacity expansion are getting impacted. The total capacity utilisation for passenger vehicles for car makers in the country is only about 60 per cent, he said.
Mr. Sen said the ban on sale of diesel cars and SUVs with engines above 2,000cc by Supreme Court “is complicating matters (and is) stigmatising technologies…The ban has been extended beyond March without any end date.” He, however, said the 7th Pay Commission is expected to boost consumer spending and positively impact passenger vehicle sales.
The industry body expects motorcycle sales to grow at 0—3 per cent as against a decline of 0.24 per cent in sales during 2015-16.
For scooters, the expected growth rate is in the range of 17-19 per cent as against 11.8 per cent in the last fiscal.