ED­I­TOR-IN-CHIEF

India Today - - FROM THE EDITOR-IN-CHIEF - (Aroon Purie)

The New York Times re­cently pub­lished an ar­ti­cle on how to spot a re­ces­sion. It pointed to a few key signs to look for in an econ­omy—ris­ing un­em­ploy­ment, de­clin­ing bond yields, man­u­fac­tur­ing de­cline, con­sumer sen­ti­ment and the per­for­mance of cer­tain in­dus­tries like real es­tate and au­to­mo­biles. In India, many numbers are dis­puted and many prom­i­nent voices deny that the econ­omy is slow­ing down. Among the numbers that can­not be dis­puted, how­ever, are the plum­met­ing fig­ures for ve­hi­cle sales—pas­sen­ger cars, com­mer­cial ve­hi­cles and two-wheel­ers. Do­mes­tic car sales saw a wor­ry­ing 22 per cent dip over the last year. Un­sold in­ven­to­ries are pil­ing up, in large part be­cause of a lack­lus­tre fes­tive sea­son last year. Around 300 ve­hi­cle deal­er­ships have shut shop across the coun­try. The rea­son is simple—peo­ple aren’t buying cars the way they used to. Sales of twowheel­ers—the com­mon man’s means of trans­port—have dipped about 12 per cent to 1.65 mil­lion units this June from 1.87 mil­lion units a year ago.

The mo­tor car is a dip­stick for the In­dian econ­omy. Be­tween the 1950s and 1980s, it was frowned upon as a lux­ury, and a cosy club of car­mak­ers in­flicted vin­tage mod­els on a cap­tive mar­ket. Af­ter the 1991 lib­er­al­i­sa­tion, the au­to­mo­tive sec­tor wit­nessed explosive growth, thanks to the un­fet­tered econ­omy and the re­moval of bar­ri­ers to FDI. Two decades ago, India’s au­to­mo­bile in­dus­tries had a turnover of just Rs 36,000 crore (1998-1999) and em­ployed 10 mil­lion. To­day, they are worth Rs 8.3 lakh crore and em­ploy 32 mil­lion—more than the pop­u­la­tion of a state like Pun­jab. The sec­tor that mir­rors ur­ban as­pi­ra­tions of mobility now sells over 3 mil­lion cars a year. India is ex­pected to grow into the world’s third-largest pas­sen­ger ve­hi­cle mar­ket by 2021. An en­tire ecosys­tem has blos­somed around a sec­tor which now ac­counts for nearly a fourth of India’s man­u­fac­tur­ing GDP. The gi­gan­tic auto ecosys­tem pro­duces the var­i­ous com­po­nents to as­sem­ble and fi­nally bring mil­lions of ve­hi­cles to show­rooms each year. When the wheels of the au­to­mo­tive in­dus­try turn, the In­dian econ­omy moves for­ward.

But the down­ward slide of this crit­i­cal sec­tor is mak­ing a se­ri­ous dent on India’s GDP growth. The im­pli­ca­tions of this slow­down are huge. The $5 tril­lion econ­omy tar­get set by the present gov­ern­ment sim­ply can­not be reached if a fourth of the present econ­omy is off­track. Es­pe­cially when man­u­fac­tur­ing is a key driver of this tar­get.

The world over, the auto sec­tor con­trib­utes to the health of any na­tional econ­omy and coun­tries of­ten step in to res­cue it, pri­mar­ily to pro­tect the core of their man­u­fac­tur­ing sec­tor. A case in point is what unfolded in the US a decade ago when the three largest au­tomak­ers, Gen­eral Mo­tors, Ford and Chrysler, were fac­ing im­mi­nent bank­ruptcy and liq­ui­da­tion. The US gov­ern­ment promptly stepped in with an $85 bil­lion bailout pack­age.

The In­dian auto sec­tor has seen its ups and down, but has been fairly re­silient even through the slug­gish eco­nomic growth of the past few years as well as the global down­turn that be­gan in 2008. Not any­more, it would seem. Our cover story ‘The Crash of 2019’, by Ex­ec­u­tive Ed­i­tor M.G. Arun and Se­nior Ed­i­tor Sh­wweta Punj, delves into the rea­sons for this slow­down. From de­pressed con­sumer sen­ti­ment to the liq­uid­ity squeeze faced by com­pa­nies to lower pur­chas­ing power and the lack of easy con­sumer fi­nanc­ing, the In­dian au­to­mo­tive sec­tor is quite clearly on a slip­pery slope.

In 2009 and 2014, reg­u­la­tory tweaks by the gov­ern­ment saved the sec­tor. It’s now for the gov­ern­ment to take a call on putting the auto sec­tor back on the road. This cri­sis, too, could be an op­por­tu­nity. US car ma­jors re­bounded from the 2008 auto cri­sis with a more com­pet­i­tive in­ven­tory of cars, in­clud­ing ones that con­sumed less fuel. They were richly re­warded and now post big­ger prof­its than in the past. Our gov­ern­ment can­not af­ford to let this sec­tor slide, with the prospect of mas­sive lay­offs adding to the ranks of the un­em­ployed. This has im­pli­ca­tions that go far be­yond eco­nomics, it may even lead to so­cial un­rest.

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