A Steady Deceleration in the Indian Automotive Sector
The Indian automotive industry is the fourth largest in the world, employing more than 35 million people, directly or indirectly. It also contributes more than 7% of the country’s GDP.
Hence, the continuous decline in passenger car sales in India is becoming a major concern. The domestic passenger vehicle industry recorded its worst performance in almost 20 years this July. Sales of two-wheelers and commercial vehicles have also been affected. This downward sales graph has led to the curtailment of manufacturing and drastic job cuts. Dealers have laid off about 350,000 workers since April and the dismissal rate has increased to 7.51% in July from 5.6% last year, according to the data monitoring group CMIE. The hardest blow has been taken by small businesses. As quoted by the General Secretary of Maruti Udyog Kamgar Union, many vendors for ancillary parts have completely shut down operations and dismissed all their employees.
State of Auto sector
The passenger vehicle sales have been dropping for straight 9 months, with a 30% decline in the recent months. The commercial sector has not fared any better till now, with a steady 10.4% decline year-on-year.
Maruti Suzuki, the biggest car manufacturer in India, has its sales down by 36.6%, Hyundai and Mahindra have also hit a drop in sales by 10% and 16% respectively. Tata Motors passenger vehicle sales have dropped 31%, while Honda Cars India Ltd. has lost 48.67% sales this year.
The effects of slowdown are rippling through the industry. Maruti Suzuki has cut loose its temporary workforce by 6% over the past 6 months. Yamaha Motors, French spare manufacturer Valeo and the Indian air conditioning leader Subros have had to lay off over 1700 people.
A spokesperson from Tata Motors said that they’ve aligned production with demand and made adjustments to their shifts to include temporary workers. As a result, they had week-long shutdowns in four plants. Mahindra went without production for almost two weeks at various plants in April and June. Honda stopped production of some car models at its plant in Rajasthan since July 16 and stopped manufacturing entirely at its plant in Greater Noida for 15 days from July 27 till August 9, 2019.
Factors responsible for sluggish growth
The decelerated growth of the market is due to various factors like higher insurance rates, volatile stock market and increased rates of GST. The imposition of BS-VI emission norms by 2020 is also a major cause for the closure in production.
BS-VI stands for Bharat Stage VI which is similar to the EURO-VI emission norm, which is followed the world over. While stricter emission norms are the need of the hour, there’s a lot more to it than just that. As it not only takes years to develop new technology but also greater investment, which only makes the end product costlier for the consumer, and hence the requirement of cleaner fuel which in itself is expensive. To wrap it up, automakers will have large stocks of vehicles which are not compliant with the BS-VI emission norm by the time of implementation.
In the recent budget, the clear push towards electric vehicles, although welcomed by the industry, has caused a reduction in demand for the Internal Combustion Engine (ICE) vehicles. Ideally, as customer psychology progresses towards a better future, so should automakers. Rajiv Kumar, NITI Aayog Vice-Chairman, lays stress on the importance of not seeing electric vehicles as a threat, and that the Indian automotive sector should collectively grab this opportunity to emerge as a global leader.
Auto industry demands ‘first aid’
The market leaders have expressed concern over the sluggish nature of the industry. The need for various reforms was discussed at the meeting with the Finance Ministry of India. Auto executives demanded tax cuts, easier access to financing for both dealers and consumers and other reliefs that could aid them in pushing the sales back up.
The distress of the industry is clearly evident, and their struggles were highlighted by the Automotive Component Manufacturers Association (ACMA) Director General, Vinnie Mehta, who quoted that the sector has been experiencing a recessionary phase. Mahindra group chairman, Anand Mahindra said that the obvious and welcome first aid would be some temporary relief on the GST front, either by modifying the slabs or by removing cess.
Industry association bodies such as Society of Indian Automobile Manufacturers (SIAM), Automotive Component Manufacturers Association (ACMA) and Federation of Automobile Dealers Association (FADA) have requested to slash GST rates from 28% to 18%. Furthermore, it was suggested to restrain or cut back hikes in road tax mandated by the state government after the introduction of GST.
If immediate action is not taken, it is estimated that more than 1 million people are at risk of losing their jobs.
The recent reforms, Union budget and the current state of the industry show a clear picture for the future where, if you need to buy a new vehicle, you should be prepared to cash in big bucks. We are still far from producing the required number of electric vehicles and eco-friendly cars to replace the old ones. Indian government’s effort towards a cleaner and less polluted world, though laudable, is way too passionate and is already taking its toll on the industry.