Economic slowdown throws automobile industry off the rails

Car sales hit by economic slowdown, BS VI, EV confusion
The industry expects the government to cut the GST rate from the current 28% to help revive demand.

No other industry reflects India’s economic crisis more than the automobile industry. An uptick in sales in October seemed like the beginning of the end of a slowdown that has gripped the industry for over a year, but it was not to be. Passenger vehicles sales stood at 263,773 units in November – a decline of 0.8% compared with October. Car sales, considered a true indicator of the state of an economy, slumped 11% to 160,306 units in November.

The economic slowdown and the resultant lack of confidence among consumers is the main reason for the slump in car sales. Experts attribute the confusion created by the introduction of BS-VI norms and the possible transition to electric vehicles for the poor performance of the automobile sector.

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The industry produced 18.9 million vehicles this financial year till November 30, compared with 21.9 million units in the same period last year, registering a decline of 13.75%. Passenger Vehicles sales fell 17.98% during the period. The dismal sales figures reflect a slump in overall demand in the economy that has resulted in a slowdown.

The economy grew at 4.5% in the second quarter of the fiscal ended September, compared with 7% in the comparable period last year. This was the worst quarter for the economy in more than six years. The growth in the previous quarter was just 5%.

The automobile sector is a rare success story in India’s manufacturing industry. It provides employment to more than 3 crore people directly and indirectly. The slowdown that started last year saw some of the larger firms shutting down plants and cutting jobs.

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Sales of passenger cars and vans fell by 25.12% and 35.28% respectively in the April-November period compared with same period last year. Utility Vehicle sales increased by 3.83%, helped by a slew of new launches.

The sale of commercial vehicles fell 22.12% during April-November period compared with the same period last year. Three-wheeler sales declined by 4.97%, while two-wheelers sales fell 15.74%. The country’s overall automobile exports expanded by 3.28% despite a 40% fall in the export of commercial vehicles and three wheelers.

The industry was all set to achieve sale of 5 million passenger vehicles when the industry came under the grips of a demand slump last year. Now it expects the sales to be in the vicinity of 3 million. The fortunes of the sector are closely linked to an economic recovery. The government can do its bit by cutting the 28% GST rate to help the revival in demand.

 

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