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.