How GST Has Affected Indian Automotive Component Industry

GST or the Goods and Services Tax came into practice on July 1 as a means to make business easier for vendors across the country. (Read: Effect of Car Prices In India Post GST) Where most businesses received tremendous relief, albeit after some initial teething issues with technical systems and breakups, the process of actually carrying out day-to-day business has most certainly become much easier. In particular the automotive component industry that has to transport parts to various auto hubs have been positively affected. Waiting periods at state and city borders have been eliminated to a large extent except for the occasional police checkpoints. This has also had a positive effect on factors like corruption that has seen a massive dip in the last two months. To put things into perspective, trucks that took about 7-8 days to reach hubs like Chennai from the NCR or Manesar region now do the same journey in only about 4 days due to no bottlenecks at octroi points.

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On the flipside, the auto component industry, represented by ACMA (Automotive Component Manufacturers Association of India) has also shown reservations against certain norms and decisions taken by the GST council in regards to GST rates on spare parts and auto components. Where some spare parts and auto components have been taxed at a flat 18 per cent rate similar to almost everything else in the industrial sector, most components have been taxed higher at 28 per cent instead. In fact, the components taxed at 19 per cent only constitute about 30 per cent of the total auto components made in India.

Incidentally, with the proposed increase on GST cess on luxury cars over 4-metres in length and SUVs in India, the component manufacturers actually can help in making sure prices do not increase overall further affecting the consumer. This can only be done if, as mentioned earlier, the GST rate on all components made in India are taxed at a standard 18 per cent. This 10 per cent drop on a majority of components can actually help offset the expected hike on luxury cars from the GST council that will be announced when the council meets in Hyderabad soon.

At the sidelines of the annual ACMA conference, Mr. Rattan Kapur, President, ACMA also told us about how the transparency in the organised sector post GST has made it more difficult for makers of spurious parts, both in the OEM replacement parts and in the aftermarket segment to do business. That said, there are still several fake and low quality parts in the market that can be fatal in the event of an accident or can cause an incident themselves due to their poor quality.