Finance Minister Nirmala Sitharaman
Finance Minister Nirmala Sitharaman

New Delhi: Finance Minister Nirmala Sitharaman's stimulus package for the automobile sector is "too little, too late" to prevent a contraction in vehicle sales, and a cut in GST rates together with a vehicle scrappage scheme will be needed to prevent the decline, Fitch Solutions Macro Research said on Thursday. On August 23, Sitharaman had unveiled a slew of measures to boost investor sentiment and prop up the banking and auto sectors. The package unveiled, the first of three planned stimulus packages, includes a reduction of taxes, improvement of liquidity in the banking sector (formal and shadow), increased government spending on auto and infrastructure, and accelerated refunds of goods and services tax (GST).

"We believe that this initial stimulus package is too little, too late to prevent a contraction in vehicle sales in FY2019 (April-March) as the decline in the automotive sector has already gained momentum, and will, therefore, be difficult to stop," it said.

In its outlook for India's automobile sector, it said the first stimulus package, however, indicates that the government is willing to intervene in the sector, which offers upside risk that the next stimulus package will be more targeted and more extensive.

Stating that the initial stimulus package is not enough to stop the decline in the automotive market, Fitch said sales may contract by 11.8% this year."We believe that further and stronger stimulus policies will be required, such as GST cuts and a vehicle scrappage scheme, to prevent the continued decline in India's autos market," it added.

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