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

China pledges international pandemic aid

 Producers of medical goods urged to meet demand from affected countries. China has pledged to do its best to offer aid to countries and international organisations affected by COVID-19 to help contain the outbreak, and businesses are being urged to boost production of epidemic prevention materials to meet demand from abroad. The announcement was made at a meeting of the leading group of China’s coronavirus response, chaired by Premier Li Keqiang on Thursday. Relevant departments and local authorities must step up co-ordination to closely monitor and analyse the quick spread of the outbreak outside China and roll out more targeted measures to prevent the import and export of infection, the group said in a statement. It is important to further


By China Daily
March 13, 2020

Back to work in Beijing, with tough measures in place

 Mandatory quarantine for those coming from overseas; some Wuhan businesses may reopen. As most of China attempts to return to normalcy after an extensive lockdown to curb the spread of the coronavirus, the capital Beijing has been carefully trying to strike a balance between having people restart work while also trying to keep out imported infections, and yesterday ordered a mandatory quarantine for all international arrivals. This comes as the Hubei government announced that some businesses in Wuhan, the outbreak’s epicentre, would gradually be allowed to reopen. On Tuesday, Chinese President Xi Jinping visited Wuhan, his first visit to the city since the outbreak, a sign that the crisis could finally be easing after the government’s toug


By The Straits Times
March 12, 2020

Xi vows victory over coronavirus in Wuhan

President expresses condolences to families of people who died in epidemic. President Xi Jinping said on Tuesday that prevention and control of the novel coronavirus outbreak remains the top priority and most important task, even amid the recent positive signs. Xi, who is also general secretary of the Communist Party of China Central Committee and chairman of the Central Military Commission, made the remark during his inspection tour in the outbreak’s epicentre, Wuhan, capital of Hubei province. The spread of the novel coronavirus has been basically curbed in Hubei and Wuhan, Xi said, adding that initial success has been made in stabilising the situation and turning the tide in Hubei and Wuhan. Xi encouraged local residents and front-line worke


By China Daily
March 11, 2020

China sets example in fighting virus

Epidemic reveals inadequacies in global governance; Beijing says it’s ready to help. China’s response to novel coronavirus pneumonia has set an example for the world in coping with the contagion and offered experience in advancing global public health governance, officials and experts said. The COVID-19 outbreak has also raised the alarm about global public health security and reminded countries that co-operation and co-ordination are needed to deal with challenges as infectious diseases can rapidly escalate into global emergencies, they said. There is a growing positive momentum in epidemic control nationwide thanks to the “comprehensive, thorough and rigorous” measures that China has taken to contain the virus, they said, noting that the daily


By China Daily
March 10, 2020

More than 800,000 people return Beijing under quarantine

“There’s still a risk of an outbreak of the disease with people coming to Beijing from other cities and countries,” Zhang Tongjun, deputy head of a group for prevention and control work in the city’s residential communities, said during an afternoon conference. About 827,000 people who came back to Beijing from outside the city are still in a 14-day quarantine to see if they had been infected with the novel coronavirus, an official said on Friday. “There’s still a risk of an outbreak of the disease with people coming to Beijing from other cities and countries,” Zhang Tongjun, deputy head of a group for prevention and control work in the city’s residential communities, said during an afternoon conference. Z


By China Daily
March 9, 2020

South Korea declares third city as special care zone as cases spike

President Moon receives letter of support from North Korean leader as infected cases cross 6,000. South Korea has declared a third city a “special care zone” to boost its capability to fight a spike in coronavirus infections, with cases nationwide soaring beyond 6,000. The death toll stands at 42, mostly the elderly with underlying health conditions, while 88 people have recovered, including 47 discharged yesterday. The care zone announcement came as the presidential Blue House revealed that South Korean President Moon Jae-in received a letter on Wednesday from North Korean leader Kim Jong Un expressing support and comfort to the people battling the coronavirus outbreak, adding that he is confident they will “prevail in this fight wit


By The Straits Times
March 6, 2020