Workers assemble a car at the Tata Motors factory in Pune in the Indian state of Maharashtra. Photo: AFP

Stung by an unprecedented drop in vehicle sales and rising unsold inventories, the Indian auto industry has asked the government for incentives including tax cuts.

The Society of Indian Automobile Manufacturers (SIAM) has sought a reduction in the goods and services tax rate on vehicles to 18% from the current 28% and a cut in the corporate tax rate to 25% from 30%, Business Standard reports.

Vehicle sales in India have been down since July last year and the passenger vehicle segment registered a decline of 20.55% in May, the biggest fall in its history.

Overall vehicle sales declined by 8.62% in May. The industry sold 2,086,358 units in May, compared with 2,283,262 units in the same month last year.

In May sales of Maruti Suzuki, India’s largest carmaker, declined 22% – the highest since August 2012. The slowdown has forced top manufacturers to streamline their rising inventories by cutting production. In May and June seven of the top 10 passenger vehicle makers, including Maruti Suzuki, Tata Motors and Mahindra & Mahindra, have announced plant shutdowns.

The cumulative sales of the top six two-wheeler manufacturers, including Hero MotoCorp, Honda Motorcycle and Scooter India and Bajaj Auto, declined 8% in May compared with the year-ago period. Amid slowing sales and an unsold stock pile-up, two-wheeler makers have been curtailing shipments to their dealers.

In the commercial vehicle category, sales declined 10% in May from the year-earlier period to 68,847 units. Sales of medium and heavy commercial vehicles fell 20%, while light commercial vehicles posted a 3.7% drop. A slowdown in the infrastructure sector and a crisis in non-banking finance companies has affected sales. The latter – shadow bankers could be another term for them – finance more than half of new truck sales. As they are not in good health, it has affected vehicle financing.

According to the data available from the Federation of Automobile Dealers Associations, a lobbying group of auto dealers, passenger vehicle inventories now stand at 50-60 days, while those of two-wheelers are even higher at 80-90 days. For commercial vehicles, inventory levels range between 45 and 50 days.

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