Although there is an atmosphere of economic slowdown in the country in the last few months but the most impact is being seen on the auto industry. Production and sales are steadily decreasing in the auto industry. Due to low production, the auto sector majors – Maruti Suzuki, Mahindra & Mahindra and Ashok Leyland – were forced to close the plant for a few days. In these conditions, the industry has received a major setback from the government.

GST Council met last Friday. In this meeting, the demand for auto industry was ignored. In fact, the auto industry was demanding a reduction of 28 per cent GST on cars to 18 per cent. But no change has been made by the council. The demand of the industry was rejected at a time when there has been a decline in the sales and production of auto companies for the last nearly one year.

Reason

The GST's fitment committee had already indicated about this decision of the council. The fitment committee had said that most states are opposing the reduction in tax slab for auto industry. States will suffer huge loss of revenue due to reduced tax slab.

According to the committee, reduction in slab will reduce tax collection by more than Rs 20,000 crore. The gross GST collection stood at 98,202 crore in August 2019, which was 4.51 percent higher than the 93,960 crore in the same month last year. Although this GST collection level was higher on a year-on-year basis, it was still less than Rs 1 lakh crore as per the government's expectation.

Country's Auto Industry in Disarray

According to the Society of Indian Automobile Manufacturers (SIAM) data, the demand for passenger cars has dropped by about one-third in the last two years. At the same time, the average annual growth in domestic sales of passenger cars in the last 5 years (FY 2013-14 to FY 2018-19) has been just 7 percent. The year 2017-18 has been an exception in this case, when there was a 14 percent increase in vehicle sales.