Daily Times

To give credit where it is due, the government seems to have put just the right ingredients in the new auto policy to make it an outstanding success. It turns out that all that was needed was to sprinkle just the right kind, and amount, of tax breaks to stimulate demand, and therefore production, and already, even before the formal announcement of the policy early next month, car producers are duly lining up to cut prices and get the ball rolling, so to speak. And to make it picture-perfect, the government has also included incentives for cars with engine capacity below 1,000cc, which got left out of the bonanza triggered by the last auto policy and removed federal excise duty (FED) and additional customs duty (ACD) on locally manufactured cars.

Now, instead of flooding the streets with SUVs, the growth of the auto sector, and the segments it caters to, will be more evenly spread. That of course means that the middle and lower-income groups have something to celebrate as well as the rush for new cars pushes up production and employment – the auto sector is 7.8 per cent of large scale manufacturing (LSM), after all – and also wages. Industries and Production Minister Khusro Bakhtiar believes increased production of cars and motorcycles can produce an additional 400,000 jobs next year, which is sure to put a smile on everybody’s faces from the government to producers to consumers.

The idea is to encourage localisation and ramp up enough production to improve capacity utilisation. Presently, when it comes to four-wheelers, the country has an annual production capacity of around 500,000 units. Yet production peaked at about 260,000 units in 2017-18, and since then has gone down and settled somewhere around 164,000 units last year. That means the current capacity utilisation is around 40 per cent, which needs to be improved to about 80-90 per cent so the industry can not just cater to the local market but assume export credentials as well.

So far most of the expansion worth mentioning has been in the SUV segment, which means the rich and big boys have had the best time so far. But the new policy seems to have done a good job of stimulating demand in lower engine-power cars as well. It has also introduced measures that should make it near-impossible for anybody, especially dealers, to exploit the demand-supply gap by charging consumers more than they should. All in all, the new auto policy seems to have just the right carrots-and-sticks mixture to suit the government’s expansionist budget. Hopefully, other sectors will also borrow a nugget or two from this policy. *