It is evident that the year 2020 is bound to have a profound effect on the automotive segment.
The effects of past policy issues besides those of the Covid-19 pandemic will be felt more by the tyre and the automotive component industry. The tyre industry estimates an impact of over Rs. 15,000 crore, assuming a five-six months period for revival.
Immediate regulatory reliefs and safeguards needed
1. Safeguard from anti-dumping: Post Covid-19, India will see a huge amount of dumping taking place. Import of tyres is under “Free Category” which adversely impacts production, sales and employment generation in domestic tyre plants.
This must be shifted to “Restricted Category” immediately.
An increase in basic customs duty on tyres from current 10 per cent to a 30-40 per cent would ensure effectiveness.
Dumping from countries such as China, Thailand etc. have already caused severe injury to the domestic tyre manufacturing industry.
2. Reduction in Import duty of natural rubber: For India to be a manufacturing base, all sectors need relaxations on import of raw materials that are deficient/unavailable. This sector needs urgent reduction in customs duty on Natural Rubber from existing 25 per cent to 5-10 per cent.
3. Radial vs Bias regulations: At the government level, there have been deliberations around technological choices around radial and bias tyres.
The answer though is straightforward, there should be mutual co-existence and the rest should be left to the preferences of customers instead of government mandates.
In India, 22 plants manufacture bias tyres and India’s defence, agriculture and mining procurements are all predominantly bias besides 70 per cent of the small-medium truckers of India.
While radial tyres come with their own set of benefits for the passenger car segment, bias tyres come with their benefits for their core customers. Hence, regulators need to have a balanced approach and not prescribe any mandates as it can also have a huge bearing on India’s self-reliant tyre industry during these testing times.
4. Labelling regimes: Regulators have also been dabbling on looking at a possible energy star equivalent labelling for the tyre industry which has worked previously for white goods and electronics space, both of which are more predictable.
The contribution of a tyre may, under lab test conditions, perform differently from real life conditions where dependencies run high on vehicle condition, spare parts driving conditions, driver capabilities, speed/load compliances etc. Hence, it is recommended that the government should look at these issues for other important sectors rather than starting with tyres.
5. Vehicle scrappage policy: Industry experts are of the opinion that such a policy can unlock the automotive sector and trigger economic growth besides reviving the automotive manufacturers and reduce carbon footprint.
While this is a welcome step, and was fully supported by the industry in a pre-Covid-19 world, this may require a sensitive and graduated approach in a post COVID world where forcible scrapping may not necessarily convert into forcible buying.
This is because affordability may hit small truckers who may require hand holding and access to capital.
Estimates suggest that many BS-II, III trucks are still plying on the road and around 12 lakh commercial vehicles are older than 15 years.
Hence, a well-structured, phased and graduated approach is needed to ensure that the benefit on one side does not disastrously hurt other sub-sectors of the industry.
Therefore, policy should carefully and practically consider manufacturing capabilities of manufacturers to meet the emerging demand that may come out of such scrappage numbers.
A well graduated phasing out plan will also help the replacement market eco-system of spare parts and tyres and will give them a much needed breather instead of pushing them out of business for next 1-2 years.
Sops and incentives
1. Direct taxes and incentives: Due to the lockdown and reduction in usage, sales and manufacturing, the industry would take four-six months to stabilise back and may require urgent sops in the form of reduction in import duties of raw materials and machinery used in manufacture of tyres, besides increased export incentives and reduction in MAT. Pending tax refunds must also be initiated to support cash flows.
2. GST: The GST council must consider reducing GST rates from 28 per cent to a lower slab and have uniform rates for tubes as well. All pending GST benefits and dues must be initiated to support cash flows.
3. Financial sop: The government must consider a financial package/grant/ relaxation for this sector for next three-four months to tide over the liquidity crisis to meet essential running costs like electricity, wages, statutory payments etc.
4. Essential Commodity: During the lockdown, essential commodities move on trucks and it would be a testing scenario if truckers did not have access to replacement tyres. Hence tyre business should be allowed to ensure availability as an essential commodity.
5. Strategic FTA: Since India has a large manufacturing base but a small share of the global market, strategic FTAs should be put in place to ensure access to markets that do not have a tyre manufacturing base.
India is already self-reliant in tyre manufacturing and maintaining this advantage is critical for civilian and military needs of the country, hence safeguarding and nurturing such sectors is the need of the hour.