Govt austerity in car purchases takes off Pragoti shine

State-owned Pragoti Industries Limited has experienced the lowest sales for the last ten years, mainly due to an austerity measure that resulted in a near-halt to car purchases for government projects.

Also, the profit of the lone government-run automobile company, which imports parts of brand new cars from the global market and sells them mainly to government entities after assembling them, fell to the bottom.

Following the dollar crisis and global economic slowdown brought on by the onset of the Covid-19 pandemic and the Russia-Ukraine war, the government stopped the purchase of vehicles under the operational and development expenses of government, semi-government, autonomous, and other organisations.

Pragati Industries got some momentum back as companies started buying cars when the pandemic eased. But the recent government-level refixation of car purchase price limits, along with increased duty on the import of parts, has created a fresh crisis.

It has brought the profitable institution of the Bangladesh Steel and Engineering Corporation to a tight corner.

According to Pragoti's data, it has sold 250 cars in the first nine months of the current fiscal year, which began in July 2022, against its sales target of 850.

The sales department says if the pace of car sales continues in the final quarter, it will not be possible to meet even 30% of the target this time.

The sales were higher at 342 cars in the fiscal 2020-21 even amid the pandemic.

The fiscal year before the restrictions on purchases were imposed, the company could sell 711 cars.

In the fiscal 2018-19, the company sold 1,448 vehicles, the most in ten years.

Pragoti Industries earned Tk7 crore in FY22, Tk38.5 crore in FY21, Tk76 crore in FY20 and Tk101 crore in FY19.

Pragoti's factory in Chattogram's Barbakund has an annual production capacity of 1,300 cars. Although, it usually assembles 900-1,000 cars.

Although there is a limited opportunity to sell cars, the limit for buying cars for government officials has been set at Tk94 lakh (including tax and VAT). But due to the 50% increase in import duty on auto parts in the last budget, the company's sales have fallen abnormally in the current fiscal year.

In order to overcome this situation, the industries ministry wrote to the National Board of Revenue (NBR) in January to reduce the duty on the import of CKD (completely knocked-down) car parts and keep it as it was.

Complete knocked down means that a product is delivered in parts and assembled at the destination.

The letter further mentioned that Pragoti Industries mainly sells vehicles to various government agencies, ministries, government departments, directorates, divisions or projects.

In FY23, the government has increased the supplementary duty on car imports from 100% to 150%, pushing up the duty on CKD imports to 289% from 212% earlier.

Again, for various reasons, including the appreciation of the dollar against the taka, Pragoti has to sell 2,477 cc cars with a profit of a minimum of Tk1.45 crore.

The letter also claimed that the supplementary duty on CBU (completely built-up) imports has been increased to 250% from 200%. It means the duty on the import of CKD parts has increased by 50%, but on CBU it has increased by only 25%.

While private sector entrepreneurs can therefore import CBUs and supply vehicles at the government level, the CKD import-dependent Pragoti Industries face major business competition. Due to this uneven competition between government and private institutions, Pragoti has suffered, according to the letter.

Md Abdul Wahed, acting managing director at Pragoti Industries Limited, said, "The prime minister ordered the purchase of Pragoti cars instead of cars from private companies in the meeting of the Executive Committee of the National Economic Council on 21 March. Moreover, the ban on buying cars under government projects will be lifted at the beginning of the next financial year."

The official hopes that Pragoti, the only state-owned car assembly company, will turn around by next year.

However, a top official of Pragoti's marketing department said on condition of anonymity that the company is currently at risk of incurring losses due to its dependence on car sales to state-owned enterprises.

In order to stand out as a sustainable and profitable organisation, the private sector should also be prioritised along with the government institutions, he added.

Even during the current crisis, private car assembly companies are doing business in the country, he further said. In this case, he thinks it is important to focus on increasing the marketing efficiency in the competitive market as well as diversifying the company.