After reading Arvind Panagariya’s article (August 21) on tactics employed by corporates in wresting concessions from the government, it is clear that he has a very poor appreciation of the successes that the Indian automobile industry has achieved, particularly over the last two decades. This cuts across industry, whether they are Indian owned or whether they are foreign owned entities – in both entities it is Indian workmen, Indian supervisors and Indian engineers who have been instrumental in achieving high levels of productivity.
The fundamental point that Panagariya misses is that vehicles in India suffer very high rates of tax – the GST rate on vehicles stretches from 28% to 50%, so the margins made by the government are huge – all of which go to shore up the budget collections of the government. In comparison, the margin that vehicle makers get on the sale of each vehicle is often less than 10% of the cost of the car. So, for all the blood, sweat and tears of Indian industry, the taxes are being paid by the consumers and the government collects the money on its part.
It is this rate of tax that needs to be brought down by at least 10% and it is due to this unjust enrichment of the government at the expense of the consumer that we are seeking this rationalisation of tax rates – call it a stimulus, a special package or whatever you like. The government should be more concerned about total revenue collections than whether individual rates of tax on products are high or otherwise.
Indian auto component makers have succeeded in keeping defect levels at single digit levels today compared to two decades ago, when it was at a triple digit high. It is this sustained approach to improving quality levels that has helped the Indian auto industry keep a tight rein on costs, while quality and technology standards have leapfrogged. The Indian auto industry has over the last 20 years moved from pre-BS standards of fuel and will shortly be getting ready for BS-VI standards from April 2020 – something that several other developing countries are yet to move towards.
It must be acknowledged that the quality of Indian vehicles on the roads has improved tremendously and Indian industry has responded to consumer safety in a most admirable manner – crash regulations, seat belts, air bags, fuel efficiency, on board diagnostics, anti-skid features – are all standard features in a motor car today. Economists would do well to acknowledge that all these improvements in vehicle functioning and design do not come free of cost – it is testimony to the customer-friendly approach that the Indian automobile industry has adopted.
It is also unfortunate that while evaluating the performance of the Indian auto industry, there has been an unhealthy and unfair focus on the profits that the auto industry makes. We must say this loud and clear – we are here to make sustainable profits that will enable us to pay our employees well, pay our taxes on time, pay our component suppliers on time, ensure the long term future of the industry by investing in research and development, train our employees well, ensure that we have a robust supply chain and responsive distribution network that takes care of the consumer, and ensure that all business risks are addressed. In addition, the industry also discharges its corporate social responsibilities as mandated by the CSR law.
The customer is the most important part of our business, but the one and a half times price that she pays in India is on account of the fact that in India, the government has a disproportionate share of the price of a vehicle to meet its budget needs. Pre-GST and post-GST tax rates for the auto industry have not changed – in fact for self-charging hybrid electric vehicles this has increased from 28% to 43%.
In conclusion, the automobile industry should be applauded for its signal contribution to the Indian economy, for creating several thousands of highly skilled jobs and for its contribution to the exchequer.
(The writer is Vice-Chairman, Toyota Kirloskar Motors)