The automobile sector is one of the largest employers in the country, According to the Society of Indian Automobile Manufacturers (SIAM); the auto industry employs about 37 million people, directly and indirectly. Cars account for an estimated for 7.1 percent of India’s gross domestic product and 49 per cent of its manufacturing GDP, according to a 2015 study, reported the Financial Times. Over 2.30 lakh people losing their jobs in July 2019. It was a big problem.
The prolonged demand slowdown has affected the production as well as employment in this sector. Along with this, the lack of working capital led to a closure of nearly 300 dealerships across the country.
In September 2018, immediately after the regulatory change in axle load norms(Axle load is an important design consideration in the engineering of roadways and railways, as both are designed to tolerate a maximum weight-per-axle (axle load)exceeding the maximum rated axle load will cause damage to the roadway or rail tracks.) had an adverse effect in these five segments of the broader automotive industry in India, comprising of commercial vehicles, passenger cars, two-wheelers, tractors, and construction equipment. These segments faced a sharp fall by 15-40% in their monthly sales volumes and this effect was so severe that it led to inventory pile-up, stalled production lines, drying up of supply chains, languishing dealership operations, postponed investments and hurtful job losses.
The Society of Indian Automobile Manufacturers (SIAM) in the month of May declared that there is sharp decline in the automobile industry which was the slowest ever in 8 years. Data provided by SIAM stated that the decline began from July 2018 (due to Axle change) and the decline was just increasing.
The Automotive Component Manufacturers Association of India (ACMA) warned in July that 10 lakh jobs were at risk and urgent action was needed to bring the industry back on track.
The domestic passenger vehicle industry recorded its worst performance in the past two decades in July and it continued for a year. On the other hand, some automakers faced a year-on-year decline of more than 30 per cent. The commercial vehicle industry, on the other hand saw a decline of 10.4% YoY in July. This was the worst decline marked in the last 20 years.
GST (Goods & Services Tax) on motor vehicles was around 28% in 2018. Due to an increase in fuel prices, higher interest rates and a hike in vehicle insurance cost , the maintenance of the vehicles turned costlier. And hence resulted in the low demand for vehicles.
In December 2018, the collapse of IL&IF resulted in the crisis in NBFC (Non-Banking Financial Companies). So Non-Banking Financial companies made the issue of loans difficult. In general, many people buy vehicles by taking loans. So, lack of loans and rising interest rates are discouraging consumers and hence resulted in low demand for vehicles.
Traffic Jams in India are becoming worse than ever. Due to this, more and more people are taking advantage of taxi services and sharing ride services, instead of buying their own vehicles. With the introduction of cab aggregator services like Uber and Ola, demand for private vehicles has decreased.
Finance Minister Nirmala Sitharaman said that to boost demand in the automobile sector several temporary relief measures has been introduced including an increased depreciation cost for automobiles for corporates and businesses, a GST cut for automobiles.
The government should consider scrappage policy by giving incentives to buy new vehicles in exchange for old vehicles. This will help the automobile industry to a great extent and also will help the government in its goal of phasing out fuel-based vehicles and replacing them with electric vehicles. Secondly, the demands to reduce GST rates for cars should be analyzed.
The Indian government should take steps to increase the availability of funds for issuing loans to potential buyers. Next, as the demand for public transport and cab sharing services is rising, the automobile industry should focus on manufacturing buses and other suitable vehicles in accordance with the growing demand instead of manufacturing more cars. This will help in reducing vehicular pollution and also will boost the automobile industry.
Crisis in the automobile industry can worsen India’s economy because it contributes to half of the manufacturing GDP. Moreover, some industries depend on the automobile industry by supplying input goods.
The COVID-19 pandemic reached Stage-II and the nation went into a lockdown after the Janta Curfew which was observed on Sunday, 22 March 2020. This lockdown has hit the labour intensive industries really hard. With millions of jobs at stake, the automobile sector is expecting a bailout package from the central bank. There is also growing concern that the impact of the coronavirus outbreak on the auto industry could spread from supply to demand.
The financial year 2020 has been a tough year for the Indian automobile industry. After facing sales crunch due to GST and the upcoming BS-VI norms, vehicle production across all categories is critically hampered due to the Coronavirus Outbreak. According to the recent figures, China accounts for 27% of India’s automotive component imports and this year faced a decline of 8.3% in the vehicle demand. Since production of most plants in China and South Korea has been seized for indefinite period, Indian auto industry is facing it difficult to maintain an inventory.
The government needs to bring policies to improve the situation of the automobile industry to prevent more job losses.
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