The automotive sector has played a pivotal role in India’s growth story and also acts as an indicator of the country’s overall economic health. However, it is also one of the sectors that has suffered the hardest from the economic upheaval caused by the COVID-19 pandemic – sales have fallen and unsold stocks have increased. The pandemic has been a double whammy, with 2018 and 2019 also having been tough due to the loan crisis, weak demand and falling discretionary spending – in fact, according to the Society of Automotive Manufacturers, 2019 has was the worst year for the sector in two decades. While the resuscitation process has begun and efforts are also being made by the government to catalyze the recovery, many pain points continue to affect all players in the automotive sector.
The automotive industry is undergoing tectonic shifts – ever-changing environmental regulations, the need to adapt and adhere to business processes that involve minimal human contact due to the pandemic, foray into emerging markets, development of blockchain platforms global sourcing and R&D centers and maintaining operational efficiency and profitability. All of these issues impact tax planning and compliance processes and it could be difficult for automotive industries to navigate a wide range of tax issues and develop the proper structures needed to create a sustainable tax management program.
The automotive industry can leverage technology to overcome these challenges and streamline processes – from managing inventory to sales, to optimizing input tax credit to reduce GST cash payments – embrace the power of technology can help the industry maintain the pace of acceleration in changing business environments. . Cloud-based platforms powered by AI can provide smart substitutes for rigorous manual processes. Cumbersome paper-based practices can be restructured through automation, which can improve time management, coordination, and reduce errors.
Clear from the makers of ClearTax, in association with Mint, recently gave a special presentation on ‘How to Achieve 100% Financial Compliance in the Automotive Sector”. Baskar Lakshmanan, Group CFO, TVS Automobile Solutions, Rohit Razdan, Chief Commercial Officer, Clear and Sanjay Deshpande CFO Flash Electronics Pvt Ltd joined host Gautam Srinivasan in this round table to share their points of view.
Mr. Razdan, made a foray into the broad outlines of the impact of technology on the way automotive players run their businesses, particularly as it relates to compliance. He explains: “What we are seeing is that we are basically coming to a time where the automotive industry itself is embracing modern technology and software. I also see big changes on the supply chain side. Advanced analytics is increasingly being used because automakers have realized that all of this now digitized data can tell them a lot of things they might not have known otherwise. There’s also a lot of digitalization in touch with customers – from managing leads to managing the sales funnel and so on. In finance, I see tax compliance funding – all of those things are changing drastically. “
While change is already underway and automotive industries are joining the bandwagon to harness the powers of technology to efficiently navigate the maze of compliance tasks, the bottlenecks abound. Mr. Lakshmanan says, “Starting with GST, Input Credit and Reconciliation, we have come some distance in this technology adoption journey for our finance functions using locally developed software for clarity. , without which we would lose the input tax credit, which in turn impacts working capital. From a compliance perspective, GST is a big nightmare that we are trying to manage and we moved to an integrated ERP to solve this problem. We are one of the largest automotive solutions companies in India and the UK, investing in technology for financial compliance. The number of statutes and regulations that a CFO must adhere to is gargantuan. The biggest challenge now is to get an integrated ERP so that all financial and compliance responsibilities are streamlined.”
While overcoming these initial issues may take some time, digitization can usher in improvements in the supply chain, reduce costs and help address margin pressures. He explains, “For any Tier 1 business like ours that supplies mostly cash-based OEMs, it’s imperative for us to look at the cost of capital and ensure that the cost of borrowing entire supply chain is reduced. Today, the cost of borrowing is very high for SMEs and I think the reason is several factors. The cost of delivering a product when there is no automation is high for the bank and there is little room for vendors like us to negotiate frequently.”
Deshpande believes that if cash flows across the entire value chain are securitized, banks’ risk assessment can be more accurate and they can reduce the interest rate they charge suppliers. “If a company like Clear develops a market where the corresponding invoices are available on the platform and if the supplier decides to finance these invoices, several banks can bid for these invoices because all these OEMs are cash-rich. The risk that the bank takes is not about the supplier but about the cash flows of the OEMs. There is unlikely to be a default on those payments. If technology can help secure that cash flow, there may be several bankers that we can access as suppliers, and we could also get competitive rates,” he says.