covid-19: Auto sector may get Rs 1-lakh crore jolt on 45-day shutdown

Mumbai: A 45-day factory shutdown will result in a revenue loss of over ₹1 lakh crore for the Indian automotive industry, which amounts to 0.5% of GDP. The country has been locked down from March 25 to May 3, by which factories would have been shut for 40 days, to curb the spread of Covid-19. Most auto plants shut on March 20.

Zero production also means the government’s goods and services tax (GST) collections will take a hit of more than ₹28,000 crore, apart from ₹14,000 crore in other state levies, according to an analysis by the ET Intelligence Group.

Although the government has allowed some plants to restart, auto companies feel there’s little point as vendor supplies are uncertain, showrooms are shut, inventories are piled high and no one’s buying any cars right now. There’s no clarity yet on what happens after May 3. Auto companies want all segments of the ecosystem to be opened up for business once the lockdown is over, with precautions in place.


Recovering the lost revenue seems highly unlikely, given that the auto industry was having one of its worst years even before the pandemic hit, experts said.

About two-thirds of the revenue foregone will be from GST on new vehicles, followed by registration tax and GST on insurance. Excise duty on fuel has also plummeted, given the restrictions on travel, depriving the states of revenues at a time when they need to cope with the pandemic’s effects.

‘Sales may Fall Below 2010 Levels’

Taxes account for 59% and 48% of the pump prices for petrol and diesel, respectively.

The auto sector accounts for the about 15% of total GST collections for the central government. New vehicle registration accounts for 5-7% of the total state-owned tax collections for the year.

With every additional week of shutdown, the production recovery is likely to be slower with many executives fearing that June quarter sales may drop more than 50% from the previous year.

The Indian market is likely to witness a decline of 25-30% for 2020 calendar year, taking it down the global rankings from the top five to six or seven behind South Korea or Mexico, said Gaurav Vangaal, associate director at global automotive forecast firm, IHS Markit. “The sales may come down below 2010 calendar year levels,” he said. “Extension of lockdown can further deteriorate the production and lead to significant job losses with cash drying up.”

With cash flows drying up, job and salary cuts look imminent, making a wide-ranging resumption imperative rather than a piecemeal opening up, executives said.

The government has a complex challenge in planning an exit from the lockdown, said Anand Mahindra, chairman of Mahindra & Mahindra. If it’s true that a 49-day lockdown is optimal, then any easing should be comprehensive.

“If a ‘calibrated’ lifting of the lockdown means sequential opening of different parts of the country, then industrial recovery will be painfully slow,” Mahindra said. “In manufacturing, if even one feeder factory is still locked down, then the final product assembly will be stalled.”

Maruti Suzuki, Hero MotoCorp and Hyundai Motor India among others have got permission to start production, but they want to be sure that that tier two and tier three component makers are ready, aside from having logistics support.

Automobile companies need to be viewed as a special sector as the supply chain is complex and interdependent, said Deepak Jain, CMD of Lumax Industries and president of the Automotive Component Manufacturers Association.

“The automotive sector has a massive multiplier effect on jobs, salaries and overall economic growth,” he said. “There are still manufacturing bases which continue to be in red zone. Our plea is to allow them to be opened up post requisite safety protocols and assurances from individual companies.”

According to the Society of Indian Automobile Manufacturers Association, each day of lockdown and therefore factory closure leads to a loss of ₹2,300 crore for the overall ecosystem.

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