Expectations from Union Budget 2015

Dear friends,

As I write my column, a core team of top, trusted officials in North Block would be working feverishly towards meeting the month-end deadline for the presentation of the Union Budget in Parliament on February 28. By the time the journal reaches you, the Union Budget 2015 will have been presented by the Hon’ble Union Finance Minister.  

We, in auto retail business, have a lot of expectations from the ensuing Union Budget, particularly in view of the fact that auto market in India has not been doing well for the last 2 ½ years. Hopefully, the Budget will contain measures to give impetus to the economy in general and automotive sector, in particular.

There is no gainsaying that the automotive sector, contributing roughly 29% to the manufacturing GDP of the country and employing 2.00 million people directly is the key to realising the Prime Minister’s ‘Make in India’ and ‘Zero Defect & Zero Effect’ missions. Auto retail & service industry alone provides direct employment to 8.0 lakh people. Its ripple effect on other connected businesses, like petroleum, banking and insurance sectors needs no overemphasis. Auto industry and auto retail business are major contributors to the Central & State exchequers.

The automotive sector is a vital cog in the wheels of India’s economic growth. The past experience shows us that almost all developed industrialised nations have piggybacked on the automotive industry to grow and develop their economies. India is no exception and the auto industry has been the engine of India’s growth since 90s when the economy was liberalised. 

The downturn in economy and the resultant weak sentiment for the last 3 years has done a collateral damage to the auto retail market in India. There have been tell-tale signs of the auto market picking up of late. However, it has largely been a roller-coaster ride and the green shoots of recovery are not firming up. While whole-sale numbers trotted out by the OEMs in the recent past look decent and display a tad pick-up in sales volumes, the situation at retail level remains hazy. Even the two-wheeler sales volumes that had been shoring up the numbers for auto market during the prolonged slump are tapering off lately. I understand from my fellow dealers across the country that retail sales are not climbing up significantly, except for few handful brands.

While the Government’s intentions are good and there are a slew of measures on the anvil aiming to kick-start the economy and put it on a high-growth trajectory, these measures are yet to translate into action on the ground. The economic environment remains challenging. The recent developments on economic front, at best, send mixed signals.

The encouraging development is that the economy is estimated to have grown by a decent 7.3% in Q3 of FY’2014-15, according to the advance estimates. Though this somewhat decent GDP growth number, after dismal sub-5% growth during the last two years, is being attributed to the change in components of GDP and base year, yet it is music to our ears after a long time.

On the flipside, other macroeconomic indicators are not so enthusing. The growth in Index Industrial Production (IIP) slowed to 1.7% in December 2014 from 3.9% in November 2014 suggesting that the actual GDP growth number may be lower than the GDP growth estimate of 7.3% for Q3. Another dampening news is that HSBC-Markit Manufacturing PMI in India decreased to 52.90 in January 2015 from 54.50 in the previous month, which means that the growth estimate of 7.4% for the year 2014-15 looks a tall order. 

Adding to the concerns is the fact that inflation has started inching up and so are the global crude oil prices. After bottoming out at $45/barrel, the crude oil prices are hovering at around $60/barrel presently, while CPI inflation climbed up to 5.11% in January from 4.28% in December.

We, in FADA, are expecting that the Budget will come up with path-breaking measures to boost the economy, leading to the sustainable recovery of auto market. Specifically, we wish that the excise duty sops for auto sector would be revived and the rate of depreciation for motor vehicles increased in tune with the market realities. We are also expecting incentives for scrapping old, polluting, unsafe vehicles in the interest of renewal and modernization of vehicle parc in India. A stimulus package especially for commercial vehicles that have been experiencing prolonged severe downturn is expected from the Union Budget. We are hoping for the best and, at the same time, keeping our fingers crossed.

Regarding FADA’s activities, a meeting of FADA Council was held recently on 3rd February 2015 at New Delhi. Apart from reviewing the market scenario, the meeting chiefly focused on the preparations for FADA’s Golden Jubilee Celebrations event, which has been rescheduled for the next month, on 17th April 2015 at Hotel Taj Lands End, Mumbai. The Automotive Dealership Excellence Awards (ADEA) presentation ceremony is also dovetailed with FADA’s 50th Year Celebration function.

I am happy to inform that the preparations for this mega event of automobile dealer fraternity are on track and making steady progress. The confirmation of participations are flowing in from the crème de la crème of the Government, industry and other allied businesses, as also the office bearers of the auto retail associations in other countries. Of course, we are also expecting an overwhelming participation of my dealer friends on this momentous occasion. Since ADEA – awards presentation ceremony is clubbed with the FADA’s Golden Jubilee event, this year’s awards assume added significance. 

Although these two upcoming events are engaging much of our attention, rest assured, we are also working on other initiatives aimed at promoting the larger interest of auto retail business. 

Over the years, the business of auto retail must have faced challenges in various forms, disrupting the way the auto retail business is conducted. The current format of brick and mortar model, in which the key premise is that the touch and feel of the product supersedes the purchase decisions, has stood the test of time. This time, a challenge to disrupt the business model apparently seems to be from the E-commerce. Of late, we see attempts by a few players in the e-commerce to offer services, which compete or complement the  activities of an auto retailer. Services such as online booking of test drives to vehicles booking are being tried and tested, albeit with little success so far. 

This development is being keenly watched by the auto retail fraternity, trying to understand whether it will disrupt the current pattern of working. FADA has taken the lead and, in partnership with Google, embarked on a drive to equip my fellow automobile dealers with the perspective of the possibilities that exist through online presence. A seminar titled “Digital Immersion for Auto Dealers” was conducted recently at Google facility in Gurgaon. Over 40 dealers participated from across the country. The response has been encouraging. We intend to take it to few other locations across India. I am keen that dealers participate and build their perspective.

You will hear about other initiatives/activities shortly.

Look forward to your views and inputs.

With best wishes,

Yours sincerely,

K V S Prakash Rao

 

 

 

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