Auto dealers cheer government’s MSME decision

The government’s decision to bring dealerships under the ambit of MSMEs will enable them to get several benefits as well as achieve sustainable growth in the near to long term.

Jul 10, 2021 SHWETA BHANOT MEHROTRA No Comments Like

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Automotive dealerships that play a key role in the auto value chain were impacted during the pandemic due to declining sales, lockdown restrictions, and high finance and maintenance costs. No wonder the government’s recent announcement to include the retail and wholesale trade under the ambit of Micro, Small & Medium Enterprises (MSME) has been welcomed by the dealership fraternity who can now look ahead to availing the benefits and subsidies offered by the states to MSMEs. 

“Under the leadership of the PM, we are committed to strengthening of MSME and making them the engines for economic growth. The revised guidelines will benefit 25 million retail and wholesale traders,” says union minister Nitin Gadkari, who until recently held both, the MSME, and Road Transport and Highways portfolios. (In a cabinet reshuffle on July,7, 2021, Narayan Rane, has taken over the MSME portfolio.) Gadkari, tweeted, “The retail and wholesale trade were left out of the ambit of MSME. Under the revised guidelines, an order has been issued to include retail and wholesale trade as MSME and extending to them the benefits of priority sector lending under RBI guidelines.” 

The government’s decision has been welcomed by the Federation of Automobile Dealers Associations (FADA). Its president, Vinkesh Gulati said, “Till now, banks were not giving us benefits like other MSMEs saying the retail trade was not covered under the category of MSMEs. Once under MSMEs, we automatically become eligible to the guidelines and benefits.

According to Gulati, one key benefit of the revised guidelines pertains to receivables. “There is a system wherein the payment has to come within 45 days. Normally, the sales receivables are not an issue but workshop receivables are. The new guidelines will enable us to sort it out,” Gulati added.

Bakar Sadik Agwan, Senior Automotive Consulting Analyst, GlobalData, says that despite turbulent times for the fraternity in recent years, automotive dealers have largely remained autonomous with minimum support or incentives from the government.

“The retail sector has had to grapple with declining sales volumes due to economic slowdown, squeezing profit margins, and adherence to deadline to clear BS IV stock in order to comply with government’s new emission regulations. The scenario worsened with the pandemic as dealers faced significant operational challenges: showroom shutdowns, new SOPs and decline in footfalls as well as sales,” Agwan says. 

From his perspective, the inclusion of dealers under MSME scheme is well-deserved and will let auto dealers avail various incentives, subsidies, and other benefits including bank interest rates, collateral-free loans, lower electricity tariffs, credit linked capital subsidy, funding support and a lot more. “This will enable auto dealers to achieve sustainable growth in near to mid-term,” he says.

“Over the last two fiscal years, on account of slowdown in automobile demand, dealerships were amongst the worst impacted stakeholders within the automotive value chain. The eligibility under priority sector lending is a welcome step and will reduce the cost of funding and improve access to financing,” says Shamsher Dewan, Vice President & Group Head - Corporate Sector Ratings, ICRA Limited.

“Most banks and financial-institutions in association with OEMs provide inventory funding facility at competitive rates. However, term loans for showroom expansion are generally offered at higher rates depending on the risk profile of the dealerships. Due to weak financials, access to long-term financing had become a tough task for dealerships. Lower risk weightage due to priority sector lending may incentivize banks to look at dealerships more favorably now,” he says.

After its exclusion from the MSME sector in 2017, the re-inclusion has been a key demand from the Indian automotive dealership fraternity. While this demand is now fulfilled, the other demand of Franchise Protection Act is still under discussion phase. 

“The law will support the dealer fraternity in the dire situation of exit/termination and day-to-day issues coming out of dealer agreements. We would also request the government to initiate the law on priority basis as it will help in levelling the playing field for large international, domestic automakers and dealers as well as help in regulating dealer setups,” says Gulati.  If implemented, it would augur well for around 15,000 dealers in India, who have 26,500 dealerships across the country. 



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