See More on Facebook

What’s happening with India’s auto sector crisis?

India’s auto industry slowdown has become the single biggest economic headache for the Narendra Modi administration.


Written by

Updated: October 9, 2019

Over a million jobs are on the line in India’s auto industry and with 350,000 of them already gone, India’s chronic job shortage has been accentuated by the massive slowdown in a sector that’s long been a major employment creator.

According to the Society of Indian Automobile Manufacturers (SIAM), the auto industry directly and indirectly employs as many as 37 million Indians.

Car sales hit a 21-year low in August.

In September, SIAM released data that shows automobile sector sales declined by 23.55 per cent in August to 1,821,490 units from 2,382,436 units sold during the corresponding month of the previous year.

This came after five consecutive months of double-digit contractions.

Cars account for an estimated for 7.1 per cent of India’s gross domestic product and 49 per cent of its manufacturing GDP, according to a 2015 study, reported the Financial Times.

Even the Modi regime’s flagship ‘Make in India’ program was in part premised on the expectation that the country would become a major automobile manufacturing hub and the third-largest market in the world for automobiles by 2020 (according to Deloitte).

India is among the 10 largest automobiles producers in the world with an average annual production of 17.5 million vehicles. Before the slowdown, it was on its way to the top five automotive markets by volume globally.

The Modi Administration’s political capital, accumulated after two thumping wins in the 2014 and 2019 General Elections, is being used up at a rapid pace as a result.

Govt Response

Finance Minister Nirmala Sitharaman, who has been copping a lot of criticism for the economic slowdown (GDP growth is down to 5%), was quick to react given the potential the auto crisis has of sparking mass discontent.

The sector, apart from generating direct employment, also provides jobs to millions thanks to ‘backward linkages’ in the vehicle manufacturing industry.

The incentives announced by the government in the past weeks include:

  • Backing off from both its push for Electric Vehicles (EVs) and disincentivizing diesel/petrol vehicles
  • Not actioning the proposal by government think-tank NITI Aayog (earlier Planning Commission) for a progressive ban on two-wheelers under 150cc and three-wheelers over the coming 5-10 years.
  • Delaying introduction of more stringent emission norms to boost sales.
  • Pushing to June 2020 implementation of the increase in registration charges for internal combustion engine (ICE) vehicles.
  • Lifting the ban on purchase of new vehicles by government departments and promoting the replacement of old vehicles with new ones.
  • Iterating that both EVs and ICE vehicles will continue to be registered in future also.
  • Increasing depreciation value to 30% for all vehicles and formulating a scrappage policy for old vehicles.

 Millennials’ Habits or Deeper Malaise?

In a widely quoted and controversial comment made last month, Sitharaman, after a passing reference to the domestic and global economic troubles, said another factor for the dip in car sales was the supposed behavioral change among cab-crazy millennials:

“The slowdown in auto sales is due to several reasons including the change in people’s mindset who prefer cab aggregators like Ola, Uber or public transportation.”

Leading economist and author of the Easy Money trilogy Vivek Kaul, speaking exclusively to Asia News Network, however, pointed out:

“There may be some truth to the millennials as one of the factors for the auto industry crisis but the problem is there just isn’t enough credible data to assert this with any certainty. In fact, there is some research to show cab aggregators themselves are in trouble and not buying new vehicles.”

Kaul makes the larger point that the troubles of the Indian auto sector are systemic and linked to the slowdown of the Indian economy.

Sunil Kumar Sinha, principal economist at India Ratings, agrees.

“The demand destruction (in the Indian economy) that has taken place over three years has resulted in the auto industry reeling; now, auto sector employees themselves are being laid off, which will put further pressure on the Indian economy,” he told FT.

Kaul put it in perspective: “The slowdown in the automobile sector is a reflection of the income slowdown in the wider economy. Incomes went up at a much faster rate in the 2009-14 period compared to 2014-19.

“It’s being felt now in the auto and other consumer sectors because over the last five years the relative lack of income growth was made up due to borrowings. But consumption feeding consumption only lasts till a point.”

He added that it’s not just car sales which are down but also of two-wheelers – including motorbikes, scooters and even the humble moped – apart from a dip in the purchase of commercial vehicles, vans and tractors.

This clearly points to a secular decline in demand and indicates the slowdown is across income streams.

What Next?

The auto industry has been lining up for sops from the government.

SIAM President Rajan Wadhera was first off-the-block in thanking the Finance Minister for announcing incentives for the auto sector.

But many experts feel that the industry itself is partly to blame for the crisis.

While Pawan Munjal, chairman of Hero MotoCorp which is among India’s leading two-wheeler manufacturers, went on record to say he “has never seen anything like this (slowdown),” in his 40-odd years in the business, others such as Sunil Alagh, former MD Britannia Industries and now an independent consultant, have been berating the major players for, in effect, whining.

“Auto majors have made massive profits over the past decade; so, if there is a slowdown in the sector, they have to stop unrealistic production targets and hunker down,” Alagh told a leading TV channel.

Vivek Kaul says he and others like him have a point: “The auto sector is now lobbying the government to bail it out just as the Indian construction-real estate sector did in the first dozen years of the millennium. But that ended in a lot of good money being thrown after bad.

“The reason the government is giving them a hearing and has announced incentives is, of course, because of the employment they generate. During recessionary times, companies are focused on their profit-and-loss statements and use conditions to get rid of excess flab. That has political and more importantly electoral ramifications.

“Bail-outs won’t solve the problem. The only way to generate consumption is to put more money in the hands of the people, and the most feasible way of doing so is by income-tax rate cuts and, if possible, a Goods & Services Tax (GST) rate reduction.

“Otherwise, India’s so-called demographic dividend which postulated more and more people entering the job market, earning and spending will continue to unravel especially as borrowings have tailed off too.

“The next quarter GDP figures are unlikely to be above the current 5%. So, for the auto sector, it’s a long haul ahead.

“Even if the government manages to put more money in citizens’ pockets, essentials are likely to be prioritized over luxury/aspirational products.”

The industry neutral corporate tax rates cut announced by Sitharaman recently which gave Indian stock indices a major boost and pushed up share prices of auto majors temporarily, is unlikely to have a major impact on the sector.

“It will improve the ability of corporates to invest but high GST and cess will continue to put the automobile industry at a disadvantage,” wrote Ritesh Kumar Singh, business economist with Indonomics Consulting, in the Times of India on 23 September.

Auto Politics

The Opposition has smelt blood even as the government scrambles to deal with the auto crisis and the wider economic slowdown it is both a reason for and the result of.

Already, Congress Party leader Priyanka Gandhi has upped the ante. Taking on Sitharaman, The Statesman reported, she said:

“A sword is hanging on the livelihood of millions of Indians. The decline in the auto sector is a sign of negative growth in production-transportation and the declining confidence of the market. The economy is falling into a deep abyss of recession. When will the government open its eyes?”

The Congress has also deployed its highly respected economist and former Prime Minister Manmohan Singh to underline the Modi regime’s ‘mishandling’ of a slowing economy in general and sluggish vehicle sales in particular.

There is consensus among economists that collapsing auto sales are a symptom of the hits taken by Asia’s third-largest economy, especially in terms of consumer demand, by three decisions of the Modi government – the 2016 cash ban, the adoption in 2017 of a nationwide GST regime and the financial sector reforms/crisis sparked by the collapse of a highly rated lender.

But there is, equally, wide disagreement among them about the necessity of these steps to secure the country’s economic future.

What is beyond argument, though, is that the steep decline in vehicle sales has steered India on to a rocky road. And it one which, if government predictions of the slowdown being restricted to only one more quarter before the recovery starts are wrong, could mean trouble for it at the hustings.

There are, after all, state elections coming up later this month for Haryana and Maharashtra which, along with Tamil Nadu, are seen as India’s auto hubs.



Enjoyed this story? Share it.


Asia News Network
About the Author: Asia News Network is a regional media alliance comprising 24 media entities.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Coming challenges call for stronger Korea-ASEAN ties

President Moon Jae-in contributed this article to The Korea Herald and Asia News Network member newspapers on the occasion of the 2019 ASEAN-Republic of Korea Commemorative Summit.  Next week, November 25-27, the 2019 ASEAN-Republic of Korea Commemorative Summit and the 1st Mekong-Republic of Korea Summit will be held in Korea. In particular, since my hometown Busan will play host to the events, I am very much looking forward to them – as if I have invited valued guests to my home. I send early greetings in a warm welcome to the heads of state and government as well as to the Secretary-General of ASEAN. The Republic of Korea was ASEAN’s first dialogue partner to establish an ASEAN Culture House. Koreans love ASEAN so much that the National ASEAN Recreation Forest was created complete with cabins modeled after the various traditional housing styles of the 10 ASEAN member states. After I took offic


By Asia News Network
November 18, 2019

Hong Kong dismisses curfew rumours

Hong Kongers on edge amid reports of evacuation of students from the mainland. Even as the Hong Kong government dismissed intense speculation that curfew would be imposed in the city over the weekend amid mounting unrest, Chinese President Xi Jinping yesterday made clear that ending violence and restoring order was the “most urgent task for Hong Kong”. Speaking at the Brics Summit in Brazil’s capital Brasilia yesterday, Mr Xi said: “The Chinese government’s determination to safeguard national sovereignty, security and development interests is unshakeable. The Chinese government’s determination to implement the ‘one country, two systems’ principle and oppose the interference of any outside forces in Hong Kong affairs is firm and unshakeable.” The growing unrest has crippled the city over the past four days, with 


By The Straits Times
November 15, 2019

Continued chaos on Hong Kong roads due to strikes

All schools shut on Thursday to protect students. Hong Kong on Wednesday (Nov 13) faced a third straight day of traffic chaos as protesters continued their strike,  obstructing roads and fighting pitched battles with police across the city as schools cancelled classes. The Education Bureau announced that all schools including kindergarten, primary and secondary as well as special schools will suspend lessons on Thursday (Nov 14) out of safety concerns. The Hong Kong Association of the Heads of Secondary Schools has asked the Education Bureau to suspend school on Friday as well. “In some schools situated under the impact of confrontational events, teachers and students had their lessons amidst the tear gas,


By The Straits Times
November 14, 2019

India should have signed up for RCEP

India has decided to put a halt on its joining the largest planned free trade area. Had India not pulled out at the last minute from signing the deal during the 3rd summit of the Regional Comprehensive Economic Partnership (RCEP) in Bangkok on November 4, the RCEP would have been the largest free trade area in the world so far—comprising of 16 Asia Pacific countries that house 3.4 billion people, and constituting one-third of the global gross domestic product (GDP) and 40 percent of global trade. Ten member countries of the Association of Southeast Asian Nations (ASEAN) along with Australia, China, India, Japan, New Zealand and South Korea fo


By The Kathmandu Post
November 13, 2019

Internet freedom under threat in Asia

Government surveillance and deteriorating rights contribute to an imbalanced outlook in Asia. The story Freedom House’s latest report tells about global internet freedom is grim. Of the 65 countries assessed in the report—which looked at events across the globe between June 2018 and May 2019—33 countries experienced deteriorating internet liberty. It’s the ninth year in a row that web freedom has declined. Two major themes emerge in Freedom House’s 2019 findings in terms of the ways the internet is being used to undermine freedoms—first, as a tool to manipulate electoral processes, and second, as a tool to surveil, monitor and target populations. The report highlighted a handful of countries in the region where these trends are particularly noteworthy. Electoral manipulation On the


By Quinn Libson
November 11, 2019

China, US agree to remove additional tariffs gradually

Both sides said further deals were ‘close’. China and the United States have agreed to remove additional duties on each other step by step as they make progress in reaching a comprehensive trade deal, the Ministry of Commerce said on Thursday. Over the past two weeks, the two negotiating teams had serious and constructive discussions and agreed to remove the additional duties imposed on each other’s products in different phases after they make progress in reaching a deal, ministry spokesman Gao Feng said at a weekly briefing. If China and the US reach a phase-one deal, both sides should simultaneously undo existing additional tariffs in the same proportion, which is an important condition for signing a preliminary agreement, Gao said. “As for how much of the tariffs should be removed, the two countries can negotiate based on the content of the phase-one deal,” he sai


By China Daily
November 8, 2019