Straws in the Wind Inspiring Hope

Dear friends,

Hope, you would have enjoyed and celebrated the festival of colours - Holi with the usual gusto and fervour associated with it.

There have been developments, both external and internal, of late, which are inspiring and fuel hope that the economy has bottomed out and that the economic crisis staring us in our face 7-8 months back, with Rupee touching record low of about 69 against Dollar, stubborn inflation showing no sign of relenting and threat of downgrade looming large on the horizon, is behind us.

As Current Account Deficit (CAD) for the entire Financial Year 2013-14 is estimated at about $ 32 billion, which is less than 2% of the GDP, worries on account CAD, rising to alarming levels in the previous financial year, have subsided. The Rupee that was threatening to breach new barriers has since strengthened against Dollar and is showing a semblance of stability. The Sensex is on upward march and scaling new high with each passing day.

Inflation, the scourge of economic ills and resultant weak sentiment and subdued demand, has started climbing down. Both WPI and CPI are inching down, albeit at snail’s pace. The Government has reduced excise duty on all motor vehicles across board in the interim budget. While the excise duty cut has so far not made any meaningful impact on the demand for motor vehicles, it is expected to kick-start sales at the retail level, as people are likely to avail the benefit of lower prices particularly before the close of current Financial Year.

The expectation of healthy agricultural output has been dampened somewhat by the unseasonal freak rains in various parts of the country. However,  the country remains on course to clock record foodgrain production on the back of expected bumper crop in wheat and rice as a result of good monsoon during the year 2013-14. The country is expected to witness a growth of 4% in agriculture, which is likely to remove, to a great extent, the demand-supply mismatch in agricultural commodities and products and ease the prices further.

On the flipside, IIP is not picking up and remains flat, at best, as the data suggest. Nor is services sector, the mainstay of Indian economy for years now, showing any significant uptrend. While FIIs have started to flock to India once again and have been pumping in money of late, the domestic investment climate remains lacklustre. There is no significant improvement on infrastructure development front. Though the current Government has tried to dispel the impression of policy paralysis and cleared over 300 projects entailing an investment of Rs. 6.6 crore during the last one year, it is yet to find reflection on the ground.

Secondly, the political situation in the country continues to be hazy and we are, at the moment, keeping our fingers crossed whether general elections slated for April and May 2014 will throw up a stable Government at the Centre. As such, if the buoyancy in Sensex being witnessed currently will be sustained after the results of general elections remains a question mark, especially when the industrial sector continues to struggle and GDP growth remains below-par with Q3 FY14 witnessing just 4.7% increase in GDP vis-à-vis 4.8% in Q2.

Unless economy in general and industry, in particular, starts growing at decent rate, creating jobs and opportunities for the young Indian population, somewhat improvement in sentiment being witnessed at present may  be short-lived. 

Needless to mention, the fate of auto market is intertwined with the pace of growth in economy and industry. This is reflected in the fact that despite the excise duty cut,  uptick in Sensex and improvement in sentiment as a result, the demand for motor vehicles, especially for commercial vehicles and passenger vehicles remains sluggish. Hope, we shall see a tangible uptrend in the growth of economy and industry soon to make the green-shoots of recovery sustainable, thereby, enabling the auto market in India to thrive and flourish again.

I am optimistic, cautiously though, that the auto market will bounce back shortly, particularly after the formation of a stable government at the centre.

Adverting to the FADA’s activities, we, in FADA Council, have had some breather, after hectic work and preparations for the Auto Summit 2014, to reflect on our further course of action. Simultaneously, we have started following up on the outcome of Auto Summit. As mentioned in my previous column, we are working on organizing a regional convention of two-wheeler dealers. The objective of holding a convention focusing on two-wheelers is that the issues relating to two-wheelers, which, at times, get eclipsed by the more glamorous passenger vehicle segment get focused attention. Likewise, FADA Council is also mulling to organize a conference focusing on issues relating to commercial vehicles and to institute awards for recognizing and rewarding the transport operators excelling in various areas of their operation. These two activities are on the anvil and you will be hearing in this regard soon.

Another activity that is engaging our attention is the tie-up with a rating agency. As you are aware, with the introduction of BASEL II and BASEL III norms, the lending banks insist on the evaluation for credit worthiness and credit rating by an accredited rating agency for access to bank credit/loan and determining rate of interest chargeable. However, the fee/charges being charged by the rating agencies are abnormally high and beyond the reach of a large section of the dealers. FADA is in dialogue with a rating agency who would undertake evaluation/rating of automobile dealers for credit worthiness at special rates. As in the case of tie-ups FADA has had with other agencies/companies for various other services, while FADA will indicate broad fee structure, it will be for the individual dealers to negotiate the terms of engagement. 

The training & development programme being conducted in association with Prashaste Education and Management Consultancy is being carried on across the country. The latest such programme was organized at Kolkata. While there has been a slackness in this activity of late, efforts are afoot to impart impetus and increase frequency of these programmes.

Recently, a team of FADA members had a meeting with the Taxation Committee of SIAM to discuss issues relating to service tax between OEMs & automobile dealers on one hand, and automobile dealers and customers on the other. I also participated in that meeting that witnessed free and frank discussion and identified major service tax related issues requiring common approach and understanding. 

Two issues that hogged major part of the discussion were: (i) Taxability of sales-linked incentives received by the dealers from their OEMs; and (ii) Tax treatment of ‘Logistics/Handling Charges’ recovered by the automobile dealers from the customers. FADA has always maintained that various types of sales-linked incentives are in the nature of trade discount and hence, attract no service tax. It was suggested by FADA that all sales-linked incentives should be shown by the OEMs as trade discount in their credit notes to avoid unnecessary scrutiny by the Service Tax Department, which leads to dispute and litigation in large number of cases.

On the issue of tax treatment of ‘Logistics/Handling Charges’ - Whether such charges attract service tax or VAT, it was felt that the ideal solution would be to merge handling/logistics charges in the dealer margin. Such a step will not only avoid dispute and litigation on the type of tax applicable but will also obviate public revulsion and litigation. Hope, OEMs will consider this suggestion in all earnestness and increase dealers’ margin dispensing with the need for logistics/handling charges.

There are many more initiatives/activities under active consideration of FADA Council. My fellow dealers will be hearing about them shortly. Meanwhile, if you have any suggestion or proposal to make the FADA’s activities more meaningful for its constituent members, feel free to send your inputs and suggestions to me or the FADA Secretariat.

With best wishes,

Yours sincerely,

Mohan Himatsingka

 

 

 

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