Indian car sector is suffering heavily
For the first time since long, the Indian car industry is in recession. Things started going wrong in the third quarter of last year and are getting worse. Last Wednesday, the sector pleaded for different urgent aid measures before the Finance Minister.
Until 2011, the Indian car industry accumulated production records, showing growth rates of 20 to 30% every year. Today, they ‘re confronted with a recession. In July, car production fell to a level not seen anymore in 20 years.
The five biggest manufacturers (representing 85% of the total market) saw their customer deliveries regress by 30%. This dive has been accelerating from -7% in April to -18% in June.
Also two- and three-wheelers
Two-wheelers, three-wheelers, and tractors were still selling well last year, but they followed the movement since January 2019. It illustrates that the whole Indian economy is suffering. Just now that a manufacturer, like Renault, counted strongly on the Indian market to realize its growth plans.
Nobody knows for sure how long this crisis will last. “Most probably till December,” says Kunal Kundu, an analyst at Société Générale. “Saving rates went down the last decade because people were consuming more. This tendency changes now, there is more unemployment, and growth has stagnated.”
India’s central bank estimates that the growth rate will be less than 7% for 2019-2020. Drought has aggravated the agricultural economy crisis. Salaries haven’t been rising more than 5% there, less than inflation rates.
Infrastructure is also lagging; cities can’t absorb traffic any more. More and more urban citizens are abandoning car ownership and looking into mobility alternatives, (like Uber and Ola, which are competitive).
The central bank is also pointing to the higher fuel prices to explain the crisis. Additionally, the insurance tariffs and the VAT on new cars have increased.
Temporary or permanent unemployment
Since April, some 350.000 workers have been licensed, according to Reuters news agency. Others are using temporary unemployment to remediate overcapacity problems. In the North, Tata Motors has closed a factory for ten days in July.
The Federation of Indian car dealers (FADA) speaks of 271 dealers who had to close shop permanently in 2018-2019, implying the loss of 200.000 jobs in the last three months.
The West of India has been saved from this marasmus until now. “Here we had no temporary unemployment or factory closings yet,” says Nitesh Patel, general secretary at the Industry Federation of Gujarat. “But the economy is slowing down, and we could soon run into difficulties.”
Last Wednesday, the CEOs of all industries involved have been addressing the Indian Finance Minister. They ask for aid measures, such as a lowering of the VAT, a scrapping premium, and lower credit rates.
“It’s 6 to 7 months now; we have been asking for the same urgent measures. We hope that supporting initiatives will be realized soon,” has declared a somewhat evasive Vishnu Mathur, CEO of the Society of Indian Automobile Manufacturers (SIAM).