Saving the Rs 100 billion Automobile Sector

Anup Baral, Executive Member, NADA Automobiles Association of Nepal

The automobile industry is on the verge of collapse as the government has imposed a ban on the import of passenger vehicles, classifying them as ‘luxurious’.

Not only has the import ban hit the automobile sector, but the entire automotive industry, from dealers to distributors, spare parts businesses to workshops.

The government and the central bank think that automobile import is the main culprit behind the depletion of foreign currency reserves, However, the passenger vehicle segment has just a one percent contribution to the total imports of Nepal. But this sector generates 14 to 25 percent of revenue for state coffers.

Being a member of the World Trade Organization (WTO), the government can’t even ban imports of items that have a positive impact on the economy. But it is an irony that people in the government think that all the problems such as the depletion of forex reserves and liquidity crisis have been brought upon by automobile importers.

In the last one year, the business of tires, lubricants, batteries, and other auto components has declined drastically. In such a difficult situation, the government is completely mum about lifting the ban. It doesn’t have any idea of how the businesses are surviving.

In the last fiscal year, Nepal imported vehicles worth Rs 70 billion. The continuation of import restrictions clearly shows the incompetency of the government as the sector that has a huge contribution to state coffers is demotivated.

The ongoing liquidity crisis and exorbitant interest rates on bank borrowings have further hampered our business. The interest rate, which used to be at 7-8 percent a year ago, is now up to 18 percent. When there is no business, how can we just repay loans at such high interest rates?

The government has levied 250 to 350 percent tax on various headings on passenger vehicles, and 105 to 193 percent on two-wheelers. In the last fiscal year, the government collected Rs 74.83 billion in revenue from automobile imports. A major source of revenue has dried up. Still, the government is not worried.

The Nepali automobile sector survived the past economic slowdowns, the 2015 Gorkha Earthquake and the Covid-19 pandemic. It feels to us that those were not as difficult compared to the situation we are in right now.

Lately, the perception of vehicle manufacturers has also changed towards the Nepali auto market. How can they trust a market where imports are blocked for nine months? It seems the manufacturers have put Nepal on their list of least priority countries.

The importers that don’t import electric vehicles are the hardest hit. As the import for EVs is open and the government has also provided subsidies, the business is growing. But there are caveats to consider for the growth of the EV market.

The prices of EVs are excessively high. It is only cheap in Nepal as the government has provided subsidies on imports. Also, the government is yet to build infrastructure for EVs. Even the charging stations are installed by the private sector.

The Nepali automobile sector has an overall investment of Rs 100 billion. But the government is reluctant in protecting the investment of the private sector. If this sector collapses, what will happen to the Nepali economy? Even in the rating of the financial sector, the automobile businesses are the least loan defaulters.

Currently, Nepal has 1,000 automobile dealers, 25,000 workshops and 10,000 spare parts shops operating across the country. Also, the automobile is one of the largest employment-generating sectors for almost two percent of the working population in the country. But ironically, the government has termed vehicles as ‘luxurious’ and ‘unproductive’.

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