Narendra Modi says: “Make in India”. Toyota Motor Corp. says, stop treating cars like drugs or alcohol. The Japanese automaker is correct that the tax structure is not viable for the industry, and Shekar Viswanathan, vice president of the India unit, put it bluntly in an interview with Bloomberg News’ Anurag Kotoky. However, instead of trying to address the specific concern about high taxes for car sin, the government turned it into a public relations problem. The Heavy Industries Minister, who also deals with information and broadcasting, took to Twitter to announce that “the news that Toyota … will stop investing in India is incorrect.”
The added luxury tax burden (from 1% to 22%, depending on vehicle size and engine capacity) is what brings the overall rate in the world’s fourth-largest car market up to 50% on some vehicles sport utility vehicles.
Six years of headline management should have been enough for Prime Minister Modi’s government. From justifying its bizarre nightly ban on most banknotes in 2016 to defending suspiciously light-hearted gross domestic product data and suppressing a not-so-optimistic household consumption survey, Team Modi has left no stone unturned when it comes to spinning a narrative. in which you are doing everything. Right. The longer this pretense goes on, the greater the risk of India getting bogged down in a post-pandemic growth rut of less than 5%.
It’s time to start an honest dialogue with disgruntled stakeholders: workers, capital, and sub-national governments. Blockades are easing even as the coronavirus continues to spread. Workers desperately want jobs to return because there isn’t much safety net beyond family or village. Companies weren’t investing even before Covid. It is impossible to reduce consumption taxes to fuel demand. India’s 29 state governments, lacking funds, urgently need the sin taxes that are intended for their exclusive use. The companies expected that these, which are in addition to the regular tax on goods and services, would expire as planned in 2022. However, due to the impact on revenue this year, it is possible that they will continue in the future.
That is not the whole story. Import tariffs on steel and electronic components may be increased, apparently to promote Modi’s Make in India campaign, further driving up car prices. Then the market will be even smaller. So what can be done?
Auto analyst Govind Chellappa has practical suggestions. Even if taxes remain high for now, end the constant tinkering with fuel tariffs, regulation and policy (diesel, gasoline or hybrid) and commit to stability for 15 years. “It takes 24 to 36 months to develop a new product and another 12 months to configure the physical infrastructure. If taxes and regulations change every 24 months, how do you decide what to invest in? Chellappa asks. Similarly, the poorly designed goods and services lien needs a one-time review, followed by long-term certainty.
India must break out of this vicious cycle where taxes are high, consumer demand is low, investment and job creation are limited, and wage income is insufficient to boost purchasing power at the base of the pyramid. Therefore, the taxes are exorbitant and must be collected from a small consumer class who can afford a $ 23,000 Toyota sedan, and filled with highly taxed gasoline that costs three-quarters more than what Americans pay.
Modi said in a television interview in early 2018 that those who make $ 3 a day selling “pakoras” (Indian fritters) should also be counted as employees. That would leave the government free of responsibility for the absence of new jobs in the formal economy. This false pakora / Toyota equivalency must end. India should allow big companies to grow and create good jobs with social security. When they are more productive and pay a little better, low-wage workers will be able to buy Made in India shirts and pants, which, as economist Rathin Roy has pointed out, are more expensive than imported clothing from Bangladesh and Vietnam.
Ultimately, the Modi government should focus on a simple statistic highlighted by Ambit Capital Pvt. And Singapore-based investor Akash Prakash. Up to 40% of the country’s publicly traded nonfinancial companies have revenues of less than $ 15 million. They are small even by emerging market standards, and the proportion has not increased at all over the past decade.
Just when India should present itself as an alternative to China facilitating business growth, the Soviet-style statism that New Delhi discarded three decades ago is making a comeback in politics, politics, and even court orders. The first step in correcting course will be to listen to criticism, rather than dismissing concerns like sour grapes or fake news. Otherwise, India Inc. will consist of a handful of very large commercial islands surrounded by small atolls that will be the first to go underwater in bad weather.
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