Slowdown in auto sector cyclical; govt taking steps to support through release of Rs 70,000 cr to PSU banks

New Delhi: Terming the slowdown in the automobile sector as cyclical, the government on Tuesday said it is taking various steps including the release of funds worth Rs 70,000 crore to PSU banks to help the sector. Minister of Heavy Industries and Public Enterprises Prakash Javadekar said the sector is facing a prolonged downturn due to various reasons, including a reduction in finance availability and an increase in cost due to upfront collection of insurance premium.

“There is a cyclical slowdown across sectors including the automotive sector for the last few months. But the festival season demand has shown year-on-year growth of 0.3 percent in the passenger vehicle segment,” Javadekar said in a written reply to the Lok Sabha on Tuesday.

Citing reasons for the slowdown, he said an increase in axle load limit for commercial vehicles by up to 25 percent expanded freight capacity, leading to shrinkage of new vehicle demand. [caption id=“attachment_1592145” align=“alignleft” width=“380”]  Representational image. AFP[/caption] Besides, the increase in collateral for dealers from 25 percent to 60 percent resulted in a reduction in inventory finance to dealers, the minister said. Further, there has been a postponement of purchases in anticipation of discounts by original equipment manufacturers (OEMs) for clearing of stock with BS-IV norms, he added. Elaborating on the steps being taken to help the sector, Javadekar said the government as a policymaker always attempts to keep and improve the momentum of the economy through a package of measures for the comprehensive and continued development of the auto sector as and when required. He said the government has taken steps like reduction in corporate tax to 22 percent, continuation of the registration of internal combustion engine vehicles in the future. Besides, the scrappage policy for the auto sector is under consideration of the government, he added. Javadekar said the proposed increase in registration of new cars has been deferred till June 2020 and funds worth Rs 70,000 crore have been released to PSU banks to help the sector. Domestic passenger vehicle sales witnessed a year-on-year decline in wholesales for almost a year until September this year. The sales increased marginally by 0.28 percent in October, driven by festive boost.