The slowdown in Automobile Sector: An indication of another economic crisis?
Experts have claimed that the slowdown is mainly due to liquidity crunch created by the recent NBFC crisis, that played a major part in automobile financing and making India 4th largest automobile market in the world, however the government is making efforts to push loans and pushing banks to fill the gap created by NBFC crisis.
- Mohit Pathak
The automobile industry which contributes 7.5% to country’s GDP and 49% to the manufacturing GDP and employs more than 3.7 crore people directly and indirectly is facing crisis as the sales are declining. Passenger car sales in India last month dropped by 30% YoY to 2,00,790 units from 2,90,931 units.
Experts have claimed that the slowdown is mainly due to liquidity crunch created by the recent NBFC crisis, that played a major part in automobile financing and making India 4th largest automobile market in the world, however the government is making efforts to push loans and pushing banks to fill the gap created by NBFC crisis.
Another reason for decline in sales is due to increase in cost of manufacturing due to compliance with new environment and safety policies imposed on manufacturers. Govt has also planned to make all new vehicle to comply with BS6 standards, which is most advanced emission standard for automobiles and are equivalent to Euro 6 norms prevalent across European market.
Industry representatives are also demanding cut in current GST rates on automobiles, which are ranging from 18% - 28% with additional cess of 1% - 22%, to give a quick boost to demand. As the rate cut will decrease the final price of the vehicle, however, it is unlikely to happen from the government as the government itself facing pressure to increase its revenue. The government also fear the rate cut may also insist other sector under crisis to raise similar demand. Moreover, the rate cut will need consent from states as well as it will affect their revenue as well.
This crisis has also contributed to the lesser talked about crisis of India i.e. crisis of unemployment. The industry currently employs over 3.7 crore people directly and indirectly. Sources also suggest that around 7% of temporary workers have already lost their jobs in recent months. Over 3000 temporary workers has been laid off by Maruti Suzuki alone.
However, the industry expects that the upcoming festive season and a good monsoon will help to boost the sale especially in rural markets. Industry representatives also seeking a Cash for Clunks kind of policy from the government. In which the consumer will be incentivise for exchanging their old vehicle with new fuel efficient and environment friendly vehicle. A period bound short term scheme may be introduced to help immediate boost in the sale.