AUTO SECTOR: CRASH WARNING
With the number of Covid-19 infections surging— India recorded 368,147 new cases and 3,417 deaths on May 3, according to the Ministry of Health and Family Welfare—several states have imposed strict restrictions on public movement and variously calibrated lockdowns. Judging from public statements by heads of industry bodies,
India Inc. appears to be on board with these steps—for instance, on May 2, Uday Kotak, MD and CEO of Kotak Mahindra Bank and president CII (Confederation of Indian Industry), called for “the strongest national steps including curtailing economic activity to reduce suffering”. Sanjiv Mehta, chairman of FMCG giant Hindustan Unilever, has called for micro-containment centres to check the spread of the virus. On May 2, the Supreme
Court also urged the Central and state governments to “consider imposing a lockdown to curb [the second wave of the virus]” while ensuring that marginalised communities do not suffer. However, in a televised address on April 20, Prime Minister Narendra Modi had said that lockdowns should be a last resort, while stressing the need for restrictions in Covid hotspots.
One reason for the surge in new cases is the massive rallies during the
recently concluded elections in West Bengal, Tamil Nadu, Kerala, Assam and Puducherry. With unrestrained election campaigning being prioritised over public safety, these states saw massive crowds at rallies and roadshows, in utter disregard of recommended public safety norms and Covid-appropriate behaviour. Now, with India’s vaccination drive faltering for lack of supplies, new Covid cases surging out of control and even the Supreme Court calling for a clampdown, all eyes are on the Centre to see if it will announce a national lockdown like the one it imposed in end-March last year. The dilemma is understandable. The Indian economy is still recovering from last year’s lockdown, with GDP growth barely crossing into positive territory (0.4 per cent) in the third quarter of 2020-21. Another fullscale lockdown might well plunge India back into recession.
Afaint silver lining is that India Inc. is taking some evasive action already. India’s automotive industry suffered for most of the past fiscal year as a result of Central and state lockdowns. This year, to ensure they are not caught off-guard and to prevent a pileup of inventory, some auto majors have already announced temporary production shutdowns. On April 20, Hero MotoCorp announced suspension of manufacturing at all its plants, between April 22 and May 1. (At the time of going to press, it had announced a graded reopening of some plants.) Similarly, Honda Motorcycle & Scooter India has closed its four manufacturing plants across the country for 15 days beginning May 1. On April 28, Maruti Suzuki also announced a shutdown of its factories in Haryana between May 1 and 9, saying this would reduce industrial demand for oxygen and increase the supply available for medical use. On May 1, MG Motor India also announced that it would shut down its plant in Gujarat’s Halol for seven days to allow industrial oxygen to be diverted to the healthcare sector.
In the past year, firms in the auto sector have had to grapple with both direct and indirect consequences of the pandemic. The lockdowns left them struggling in the first and second quarters of 2020-21. In the fourth quarter, the sector was hit again, this time by a shortage of semiconductors—a critical component—as well as a shortage of transport containers and high freight charges. Q4 demand was also dampened by high fuel prices and price hikes by automobile manufacturers.
According to a note from Care Ratings, retail sales of passenger vehicles fell 12 per cent year-on-year in 2020-21, with two-wheeler sales dropping 34 per cent and commercial vehicle sales dropping 51 per cent (see Recovery on Hold). In its projections for the current year, the note says the imposition of lockdowns in April and May—when the festivals of Ugadi, Gudi Padwa, Baisakhi and Eid typically lead to an uptick in demand—‘will seriously dampen the industry’s growth, as production levels [drop]and the closure of dealer showrooms [leads] to a fall in retail sales.’ Given the massive surge in Covid-19 cases across India, first quarter sales are expected to be low across automobile segments. As a result of the disruption so far, Care Ratings projects that passenger vehicle sales could contract up to 5 per cent in 2021-22 compared with the previous year; two-wheeler sales, however, could still grow 7-12 per cent, the report says. (These estimates are predicated on the hope that some normalcy will return by October this year.)
Meanwhile, various agencies have lowered their projections for India’s GDP growth in the current fiscal. Care Ratings has revised its forecast down to 10.2 per cent from its earlier projection of 10.7-10.9 per cent, while India Ratings has scaled it down to 10.1 per cent from 10.4 per cent. Should India need extended lockdowns to check the spread of the virus, these estimates will obviously be further downgraded.
Experts say the disruption of India’s economic recovery—and the cascading consequences for lives and livelihoods— could probably have been averted with less complacency and a reinforcement of Covid-appropriate behaviour through regular awareness drives and a strict enforcement of safety measures like social distancing and mask-wearing. A policy line that made clear distinctions between essential, discretionary and inessential activities during a pandemic (which had only receded, not gone away) would also possibly have helped avert a big surge—and the clampdowns necessitated by the surge. However, since the damage has already been done, the only option left for administrators is to implement clampdowns in areas with surging case numbers, while doing everything possible to make sure that vulnerable sections of society and small businesses do not suffer.