Stop. Horn Please. The Great Automobile Crisis!
Car sales have dropped to a two-decade lowest and 1,00,000 jobs have vanished. Fear is rising. Instead of blaming the Millennials, the million-dollar question is: Will the BJP Government do something to stop the crisis in the automobile sector?
New Delhi, Sep 20: Car sales have dropped to a two-decade lowest and 1,00,000 jobs have vanished. Fear is rising. Instead of blaming the Millennials, the million-dollar question is: Will the BJP Government do something to stop the crisis in the automobile sector?
Written By Rajeev Shukla:
When it comes to cars I am quite possessive about mine. There was a time, 30 years ago, when a person from a middle-class income group in India who could afford a car felt that he or she had made it in life if they were able to purchase a middle-range car on monthly installments.
It still is a cherished dream for the bulk of our 1.3 billion population. The millennials using taxi aggregators like Uber and Ola cabs in metropolis and tier I cities are but only a smaller fraction of India’s larger demography.
Considering that, it was only in 1897 when the first car ran on an Indian road, one feels immensely proud and protective of our hitherto burgeoning automobile industry.
The Indian automobile industry was amongst the key growth engines behind the rise of the Indian economy in the 2000s and running up to 2014. Shri Rajiv Gandhi, the then Prime Minister in 1986, started the Delhi Auto Expo to promote the auto industry.
The 1986 Auto Expo was a showcase for how the Indian automobile industry was absorbing new technologies, promoting indigenous research and development, and adapting these technologies for the rugged conditions in India.
Post-1992 liberalisation, multinational automakers were finally allowed to invest in the Indian market. By 2009, India automobile exports had reached $4.5billion.
In 2014 India exported $14.5 billion worth of automobiles and we became the fourth largest passenger vehicle producer in the world.Given the gargantuan efforts and several decades it took for our automobile industry to become a force and given its current significance in driving Indian economy’s growth, which certainly seems to be off-track for now, it’s hard to believe that the same industry is now staring at a multi-layered crisis.
The automotive industry, which is India’s biggest industry, employs some 35 million people and contributes more than 7% to the country’s GDP and 49% to the manufacturing GDP.
However, there has been a sharp decline in demand for the 10th month in a row this August, with car sales dropping by 31.57% -- the steepest in last two decades.
According to data released by the Society of Indian Automobiles Manufacturers (SIAM) on September 9, domestic car sales fell for the 10th straight month in August, declining 31.57% to 1,96,524 units from 2,87,198 units in the year-ago period.
By some estimates, more than 100,000 workers, many of them contractual, have lost their jobs so far. Apprehensions are rising that if demand continues to fall, forcing lower production, more jobs could vanish.
Industry heavyweights like Tata Motors, Maruti and Mahindra & Mahindra have all announced production cuts over the last few months.
This is probably happening because of reasons ranging from higher interest rates for car loans, rise in fuel prices, transition to the Bharat Stage Emission Norms (BS VI) to regulate the emission of air pollutants, fine hikes under the recently imposed Motors Vehicle Act, the government considering banning internal combustion engine (ICE) vehicles to shift towards electrically powered cars, increased cost of mandatory car fittings like airbags and reverse sensors and a general GDP slowdown, and the fundamental point that vehicles in India suffer a very high rate of taxes – the GST rates on vehicles stretches from 28% to 50%, and therefore, the margins of profits made by the government are huge.
But, one expected the BJP government to immediately come out with a raft of measures to stop the situation from becoming a crisis. Instead, the Union Minister for Finance and my good friend, Smt. Nirmala Sitharaman says that it’s the millennials’ mindsets that are to blame for the cars sales slowdown.
Speaking about the slowdown at a press conference in Chennai, Nirmala ji said, “Some studies show that millennials do want to commit to an Equated Monthly Instalments (EMI) to buy a vehicle, and prefer Ola, Uber and metro services.”
While the Union Finance Minister also acknowledged that this was one of the factors and that the government was working towards solving the problem, her earlier comments about the slowdown were simply trivializing a complex issue.Till date, one does not know the BJP government’s stand on the multi-layered crisis staring at the automotive industry and the Indian economy at large.
Let me begin by asking:
a) What is really happening with India’s economy
b) What are the corrective measures being taken by the BJP government on the slowdown in a key sector for any economy?;
c) What are the growth plans of the current government beyond making a high-decibel pitch about transforming India into a $5-trillion economy? I doubt, if anyone in India has heard anything concrete from the ruling party on these critical issues beyond some of the ministers trying to obfuscate the issue or are playing with words and mixing up in the process Einstein and Newton!
I come back to my point made earlier: owning a car is still a dream for a majority of people in India.
India has a ratio of just 22 cars per thousand individuals, while in the US and UK, 980 and 850 per 1000 individuals have car respectively. The index per thousand individuals reveal that New Zealand has 774, Australia 740, Canada 662, Japan 591, and China has 164 motor vehicles.
World Bank data shows that in dollar terms, India was among the slowest growing large economies in 2018. The GDP growth rate of the Indian economy has slipped to 5% in the first quarters of FY20, the lowest in six years.
This is an indication of tougher times ahead. Be it the recent collapse of the automobile sector or the rising number of non-performing assets, sluggish consumer demand or falling manufacturing sector; all have a hand in deceleration of growth rate.
The $5-trillion economy promised by the BJP has echoed in several speeches till now, but since then the goal is becoming more distant.
(Author is a senior political commentator and columnist)