Caught in a slowdown, India’s auto sector sees no hope for growth until festival season

Lack of easy credit to consumers from banks and crisis-hit NBFCs has led to weaker vehicle sales. Below normal monsoon could make it worse.

Traffic jam (Representational Image) | ANI Photos

New Delhi: The worst is not yet over for India’s automobile sector, shows new data released by the Society of Indian Automobile Manufacturers (SIAM) Tuesday.

Driven by the overall slowdown in India’s economic growth, domestic passenger vehicles sales in May fell 20.55 per cent from a year ago, according to the data. The decline in passenger vehicles sales in the April-May period was at 18.82 per cent compared to a year ago.

But this is not all.

While motorcycle sales registered a drop of 4.89 per cent in May from a year ago, overall sales of two-wheeler sales declined by 6.73 per cent.

The SIAM data also shows that sales of commercial vehicles fell by 10.02 per cent. Overall sales of vehicles across categories contracted by 8.62 per cent from a year ago.

These numbers come just a month after the sector saw worst car sales in eight years.

‘Unlikely to improve’

Experts say the sector is unlikely to move in the right direction in the next two months.

“The situation is likely to remain grim until the festive season kicks in around September,” said Rakesh Batra, partner and national leader for automotive practice at EY India.

Batra added that the drop in sales reflects the overall economic situation and slowdown.

The country’s GDP estimates for the March quarter of fiscal 2018-19 registered a growth of 5.8 per cent — the lowest in five years — primarily due to a slowdown in investment and manufacturing besides a decline in agricultural production.

Lack of easy credit to consumers from banks and the crisis-hit non-banking financial companies (NBFCs) has also led to weaker vehicle sales. And a below normal monsoon can make things tougher for the automobile sector, added the experts.

According to the Federation of Automobile Dealers Association, inventory levels have continued to remain high and sales are unlikely to pick up in the near future.

Liquidity crunch for dealers is adding to the woes, leading to closure of several of them and distribution issues.

Policy action

The Modi government is looking at ways to boost demand and consumer spending, with several measures likely to be announced by Finance Minister Nirmala Sitharaman in her first budget speech on 5 July.

Last week, the Reserve Bank of India too announced a reduction in repo rate in its monetary policy, paving way for the banks to offer loans to consumers at a cheaper rate.