Slowdown reflected in weak demand
Indians are buying less of everything as the economy is losing steam, slowing down for the third consecutive quarter. One indication of this is the changing commentary of managements, which are aimed at pacifying the shareholders at a time of unusual circumstances. Major fast moving consumer goods (FMCG) companies are suffering the impact of rural distress. Sales growth of even basic products like wheat flour, hair oil and toothpaste have declined.
ITC, announcing its latest quarterly results said: “The FMCG-Others segment delivered a resilient performance during the quarter amidst a marked slowdown in the FMCG industry across urban and rural markets”. The well- known coffee and Maggi maker Nestle India said: “We are proud of our strong performances in Maggi, Kitkat and Munch among others. However, the environment continues to be challenging with headwinds in commodity prices and softer demand conditions”.
Weak rural demand also impacted the sale of two-wheelers. Commenting on the company’s performance Eicher Motors said: “The two-wheeler and CV (commercial vehicles) industry continue to face headwinds. In the CV industry, sales have been low due to weak demand on account of economic slowdown and liquidity. It is also witnessing heavy discounting,” the company added. FMCG giant Hindustan Unilever, which saw a significant decline in sales volumes during the June quarter, also said, “the near-term demand will remain subdued given macroeconomic conditions.”
After denting the auto sector’s profitability, the consumption slowdown
along with the upcoming shift to BS VI standards will further decelerate production, leading to eventual job losses. Industry insiders say the slowdown, which is a culmination of high GST tax rates, farm distress, stagnant wages and liquidity constraints, has led to the month-onmonth sales de-growth.
Besides, inventory pile-up at dearlership level and stock management of the unsold BS IV vehicles has become a problem for the sector. According to Grant Thornton India Partner Sridhar V., a further reduction in production due to the continuing degrowth in sales of passenger vehicles can be expected.
The sales downturn assumes significance as the auto industry contributes almost half the manufacturing GDP and 11 per cent of the total GST revenue.
Society of Indian Automobile Manufacturers (SIAM) figures showed that domestic passenger car sales in June went down by 24.07% to 139,628 units. In the commercial vehicle segment, domestic sales were down 12.27% to 70,771 units last month. The overall sales of two-wheelers, which include scooters, motorcycles and mopeds, edged lower by 11.69% to 1,649,477 units. Total sales of the Indian automobile sector declined by 12.34% during June 2019 to 1,997,952 units across segments and categories.
Consequently, sales slowdown led to curtailment of manufacturing with the domestic passenger cars’ production coming down by 22.26% to 169,594 units, from 218,167 units.
Similarly, commercial vehicle production was down 23.39% to 69,496 units in June. Overall, two-wheelers’ production edged lower by 11.70% to 1,915,195 units. Total production of the Indian automobile sector declined 12.98% during June 2019 to 2,336,138 units across segments and categories.
Air travel to and from India in the January-March quarter this year grew at slowest pace of 3.8% in the last four years, pointing to a slowdown in the economy. Latest data compiled by aviation regulator Directorate General of Civil Aviation shows both foreign and Indian carriers together flew 16.4 million passengers in this period compared to 15.8 million in the same quarter last year.
Compared to this, the airlines had clocked 11.3% growth in 2018 over 2017, when they flew 14.2 million passengers. In 2016 and 2017, traffic growth was 9.32% and 7.5% respectively.
Aviation industry experts said the slower growth this year is a result of multiple factors, from Jet Airways pulling out their operations, slowdown and lean season. “There are multiple reasons. Jet Airways has, of course, dented because it reduced capacity on international routes those months. Even other airlines are not going 100% full. Economic slowdown, I think, is one of the important factors,” said Rajan Mehra, CEO of Club One Air and former India head of Qatar Airways.
“It’s not just travel. People are not buying cars, they are not buying consumer goods. I think slowdown in the economy is probably a much more important factor than Jet pulling out. People are travelling less. There is overall a sense of the economy softening up,” he said.