India’s automobile industry is experiencing a snowballing crisis of demand that shows no signs of abating, leave alone reversing.
Domestic sales across all vehicle categories slid 19% year-on-year in July 2019.
Why is there a slide?
As passenger vehicle dispatches plunged 31% to register the segment’s steepest fall in almost 19 years, the domestic sales across all vehicle categories slid.
With the 2-wheeler deliveries contracting 17% and commercial vehicle shipments slumping at 26%, the picture is one of widespread gloom.
What could be interpreted from the data?
It could be interpreted that demand has dried up in all corners and among all key consumer segments — urban, semi-urban and rural and personal and institutional.
Nine months of contraction in passenger vehicle sales has also begun extracting a toll in terms of showroom closures and lay-offs at dealerships, component suppliers and vehicle makers themselves.
The Federation of Automobile Dealers Associations recently warned of more jobs being at risk, on top of about 2 lakh positions that have already been shed.
The Society of Indian Automobile Manufacturers said that the industry had laid off at least 15,000 contract workers in the last 3 months.
The broader economy is experiencing a serious slowdown has been evident for some time now and the latest data from the auto sector only bears proof to it.
RBI acknowledged that private consumption, the mainstay of aggregate demand remains sluggish.
What are the factors that are bedevilling demand in the auto sector?
There is a liquidity crunch in the NBFC industry and the resultant tightening of credit availability to finance vehicle purchases.
An increase in up front insurance costs and the 28% GST charged on cars, motorcycles and scooters.
An overlooked fact is that the manufacturers overestimated demand when setting up capacity, especially of fossil-fuel powered vehicles.
E.g., Maruti Suzuki has announced plans to stop selling diesel cars from April 1 as demand has slumped.
The ride-share industry has mushroomed in recent years have incentivized rapid adoption of app-based commuting.
Why the outlook looks far from hopeful?
The RBI’s July round of its Consumer Confidence Survey reflected a decline in consumer confidence in July, 2019.
It shows that 63.8% of respondents expect discretionary spending will stay the same or shrink one year ahead.
In June 2018, the comparable reading was 37.3%.
The onus now lies on the government to urgently formulate policy interventions to address this sectoral crisis or risk wider contagion.
