Auto: Still On Full Throttle!

The Indian automotive industry was among those rare industries scarcely dented by demonetisation. Not counting a three-month blip soon after that November announcement to call back old Rs 500 and Rs 1000 notes, automobile industry sales have moved much the way they have every year — up!

The industry, plagued by multiple disruptions like the ban on diesel engines in the capital, the flourish of e-vehicles and new emission norms, etc., began roaring in full throttle from April this year. Perhaps, one reason why the automobiles industry remained unscathed by the cash crunch and emerged from the woods at such speed, was because most vehicle purchases in India are financed by banks and financial institutions. Vehicles are rarely purchased outright in cash.

“This financial year we (Maruti) have grown by about 15 per cent,” says R. C. Bhargava, Chairman, Maruti Suzuki India. “So, the adverse effect of demonetisation on our company is nil. We and the entire industry are better than in previous years.”

 Puneet Gupta, Associate Director, IHS Markit, a sales forecasting and research firm says, “The automotive industry was the least impacted vis-à-vis other industries. It has come out very quickly from the demonetisation effect. If you talk about four-wheelers especially, around 75 per cent to 80 per cent of the sales are finance-driven.  So, the cash transactions were the least and hence, the impact was felt only for a couple of months.” He points out that two-wheeler sales were hugely impacted because they involve higher cash transactions, especially in the rural market and smaller cities.  

Sales of commercial vehicles and tractors were also impacted (See graph).

Society of Indian Automobile Manufacturers (SIAM) data shows that passenger vehicles sales have grown by 9.16 per cent between April and September 2017 to 16.30 lakh vehicles from 14.94 lakh vehicles during the same period last year. The  commercial vehicles segment has grown marginally by 5.96 per cent between April and September 2017 at 3.53 lakh units from 3.33 lakh units during the same period last year.

 Two-wheeler sales roared too, growing by 10.14 per cent at 1.05 crore units between April and September 2017 from 95.39 lakh units during April and September 2016. Within the two-wheeler segment, scooter sales grew by 17.26 per cent at 35.77 lakh units compared to 30.50 lakh units last year. Motorcycle sales grew by 7.71 per cent at 65.08 lakh units, compared to 60.42 lakh units last year.

Vishnu Mathur, Director General SIAM says, “There was a very minimal impact on the domestic automotive industry post the announcement on demonetisation.  Although there was a complete lull in the market for a month or so, volumes rebounded very quickly. While the two-wheeler segment took some time to recover because of its exposure to rural markets, the passenger vehicles segment saw an uptick in numbers by the end of December.”  

Sales were up and so was production. The automobiles industry produced altogether 1.46 crore vehicles including passenger vehicles, commercial vehicles, three-wheelers, two-wheelers and quadri-cycles between April and September 2017, which was a 9.18 per cent jump over the 1.34 crore vehicles produced between April and September 2016.

Puneet Gupta of IHS Markit says, “We can clearly see a double digit growth at 10 per cent for passenger vehicles over the last few quarters.  Going forward, because of the remonetisation steps taken by the government, the businesses which were impacted have come out well.  All eyes are now on the annual budget (2018-19) where we are expecting big bang reforms.”

The hue and cry over demonetisation is therefore, missing in the factory sheds of cars and motorcycles. Says Pankaj Dubey, Managing Director and Country Head, Polaris India,“Demonetisation was a good step and has helped even the common man to start going digital, especially through mobile apps. It might have hurt the country for a short span of  time, but it’s a good step for a longer run. The industry must support all such initiatives and take the lead in investing in the creation of a digital economy.” Dubey supports  government incentives for R&D investments in digitisation.

 “The fear inflicted in the minds of hoarders and the common man is such that over dependence on the cash economy is reduced and is slowly moving towards the digital economy,” says he. ”