- According to the data released by industry body Society of Indian Automobile Manufacturers (SIAM), the passenger vehicle sales declined by a little more than 20% in May 2019 as compared to last year.
Background/Some facts about India’s automobile industry
- India’s automobile industry is worth Rs 4.8 lakh crore.
- It contributes around 7.5 per cent to the country’s GDP.
- It contributes 49% to the manufacturing GDP of the country.
- Around 3.7 crore (37 million) people are employed directly and indirectly by this sector.
- The Indian auto industry ranked the 4th largest in the world in 2017.
- It became the 7th largest manufacturer of commercial vehicles in 2017.
- India is also a prominent automobile exporter.
- However, this sector is currently facing a multi-layered crisis.
Summary of the news
- Indian Automobile industry body, Society of Indian Automobile Manufacturers (SIAM) released the data on domestic passenger vehicle sales.
- According to the released data-
- The domestic passenger vehicle sales declined by a little more than 20% in May 2019 to about 2.4 lakh units.
- It is the steepest fall in nearly 18 years, since September 2001.
- The sales across all vehicle segments, including two-wheelers, three-wheelers and commercial vehicles went down.
Reasons for the slowdown of Indian Automobile industry
- Weak demand: The decline in wholesale automobile numbers is continued mainly due to weak consumer demand, which is forcing manufacturers to undertake inventory correction.
- BS norms: The transition to the stricter BS6 emission norms from April next year will result in a hike in vehicle prices, which will further slowdown the sales.
- Diesel price: Diesel as a fuel for SUVs and luxury vehicles is seeing an upward price, which is also a reason.
- Shared mobility: Buyers in big cities such as Mumbai, Bengaluru, Delhi and Chennai are not purchasing the vehicles with much enthusiasm due to factors such as growing popularity of shared mobility (Olas and Ubers), rising congestion on road, and improving public infrastructure.
- Rural distress: The distress in rural segment with reduced farm incomes has aggravated the problem.
- Liquidity crisis: The liquidity crisis, which emerged due to the NBFC sector, has reduced the demand for vehicles as well.
- Policy shocks: Multiple policy shocks like demonetization and GST have impacted the sales.
- Reduce GST: The automobile industry body SIAM had asked the government to reduce GST on all categories of vehicles from 28% to 18%.
- Policy: It is suggested that the government should also come up with a vehicle scrappage policy, which would create market for new vehicles.
- Separate ministry: With multiple ministries interfering, the industry is facing a plenty of policy flip-flops and hence a dedicated ministry for such an important industry will help in effective policymaking.