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New Delhi/Mumbai, July 4 (IANS) Rural demand has emerged as a green shoot in an otherwise worrisome demand outlook for the Indian auto industry in FY21.
Accordingly, not just accelerating agricultural growth, the fiscal support package along with a healthy monsoon are expected to generate some demand for automobiles that might avert a total sales wipeout in FY21.
Notably, two-wheelers and tractor demand has seen some healthy traction.
Speaking to IANS, Society of Indian Automobile Manufacturers' Director General Rajesh Menon said: "There is clearly a pick-up in rural demand. We are also seeing some green shoots in demand for two-wheelers, Small Commercial Vehicles (SCVs), and small cars."
"The agricultural sector package announced by the central government, under the 'Atmanirbhar Bharat' initiative, coupled with a healthy monsoon, is likely to benefit the auto sector."
Nevertheless, he said, the Covid-19 induced economic contraction will make a substantial dent on India's auto sector.
The industry fears that sales might decelerate between 26 and 45 per cent on a year-on-year basis in 2020-21.
As per SIAM's FY21 outlook, auto industry will degrow in the range of (-) 26 to (-) 45 per cent, given that GDP growth plunged into the negative territory.
The forecast is, in part, co-related to the prediction of an overall dip in India's GDP growth rate.
Recently, national and international monetary agencies have cited a range of minus 4.5 to 5 per cent contraction in India's GDP growth rate.
However, this initial estimate can change, given an uptick in sales performance during the coming festive season and expected growth of agricultural sector on the back of a good monsoon.
The auto industry has already witnessed an 18 per cent degrowth in FY20 and the likely demand contraction now can only lead to severe production cuts, low capacity utilisation, lack of future investments, and high risk of bankruptcy and consequent job losses across the entire automotive value chain.
The pandemic will definitely have an impact on auto demand in FY21. This can be attributed to a drop in disposable incomes, general sentiment of uncertainty, plummeting economic activities, amongst others," Menon told IANS.
"As per SIAM's Outlook for FY21, if the overall Indian GDP growth is negative as stated by the RBI Governor recently, the Indian auto industry will degrow in the range of (-) 26 per cent to (-) 45 per cent in various industry segments."
According to Menon, auto industry is facing both supply and demand related challenges.
"The key supply-chain related operational issues faced by OEMs include continued restrictions in some locations where suppliers are based; availability of trained labour who have moved back to their hometowns and villages; delay in clearance of import consignments due to congestion at ports; and demurrage charged by sea ports and container freight stations," he said.
The major challenge, however, is on the demand side, he added.
Lately, SIAM has called upon the Centre to consider fiscal measures to boost demand, including reduction in GST, implementation of incentive-based vehicle scrappage scheme, and initiating a major procurement programme by state transport undertakings (STUs).
"It is also imperative for the Union government to include wholesale and retail trade and repair of motor vehicles and motorcycles in MSME Development Act of 2006," Menon said.
"The subsidies and incentives received under this Act would provide much-needed relief to the thousands of our network partners and dealers and help improve their liquidity. This will have a long-term positive impact on the sector as a whole."
Furthermore, Menon said that localisation is the way forward for the auto industry, but the Centre's support is required to develop the sector.
"There is a major import dependency in the auto component industry, leading to high cost," he said.
"While the auto industry recognizes the need for deep localisation, it needs government support to make it a reality."
(Rohit Vaid can be contacted at rohit.v@ians.in)
--IANS
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