India’s automobile market is in deep trouble. Fresh figures released by the Society of Indian Automobile Manufacturers show that sales of passenger vehicles in July plummeted 31% from the offtake a year earlier. This marks the ninth straight month of decline, and the steepest in about two decades. Given the alarming fall, it isn’t surprising that carmakers have intermittently been halting production until dealers clear inventories. Most companies are offering discounts, and some are hoping that new launches would whet demand. But little of it seems to be working. The sector, as the numbers show, continues to shrink, threatening job losses across the supply chain. The Automotive Component Manufacturers Association of India has warned that nearly a million jobs could be lost if the contraction persists. For an economy accustomed to high single-digit growth, the travails of its main manufacturing industry have turned business sentiment especially gloomy. Whether slower growth in incomes is to blame or market- specific factors remains a bit of a puzzle.
Much of the problem can be explained by the broader slowdown in the economy. Growth in gross domestic product has slowed to a near five-year low of below 6%, with consumer demand far weaker than seen in recent years. In such a situation, it is natural that fewer new vehicles would be bought. In addition, credit availability is tight, fuel prices are high, a judicial intervention has raised upfront insurance costs sharply, and the prices of automobiles have gone up on account of higher input costs. All these have depressed demand to varying extents. Policymakers believe some of these factors are temporary, and expansion would resume once the adverse trends reverse. But their optimism may be based more on hope than realism. Given the sharp slide in sales, it appears more likely that some of it also has to do with the government’s aggressive push for the adoption of electric vehicles (EVs). That car manufacturers are ill-prepared for New Delhi’s hasty transition plan is more than apparent. But even consumers could be having second thoughts about making four-wheeler purchases. Their fear, as a few industry stalwarts have observed, is that conventional vehicles would turn obsolete in less than a decade. This may be prompting consumers to defer purchases until greater policy clarity emerges.
To address the crisis, the industry has asked for a cut in the goods and services tax rate. This may not help if the problem has more to do with technology uncertainty than affordability and access to credit. Unfortunately, the government’s EV transition road map offers little by way of reassurance. To smoothen the process, the Centre should spell out its objectives clearly and elaborate how it plans to enable such an ambitious shift with minimal disruption. With technology standards currently in flux, this would make a difference. Government incentives for EVs are desirable, but it is preferable if Indian traffic undergoes a market-led rather than policy-pushed transformation. There should be no restraints placed on consumer choice. Carmakers and consumers might need more than a decade to adjust to a market being nudged away from vehicles that burn fossil fuels and spew dangerous emissions. Achieving environmental goals is important, but if in doing so we end up leaving an industry that employs millions in disarray, then the goal itself may face resistance.