Pushing the auto sector
The automobile industry contributes nearly 49 per cent to the country's GDP growth. In the backdrop of the plaguing concerns of economic slowdown, not only does the auto sector employ a significant number of manpower that makes a difference on the national scale, any trend which affects this sector, specially adversely, is bound to have its ripples across the economy in a manner to instigate concern on a large scale. With the continuing downward spiral in the sector, over 10 lakh jobs remain at stake. As per a Reuters report, since April 2019, automobile and auto component units and automobile dealers in India have laid off 350,000 workers. With mounting losses of revenue and profits, the latest figures of sales for the month of July confirm that the overall sales have dropped to 32 per cent, and passenger cars see the maximum decline of almost 36 per cent. Sales of commercial vehicles are said to have plummeted 25 per cent while the sale of two-wheelers was 16 per cent lower than July last year. Clearly, the worst is far from over. Society of Indian Automobile Manufacturers (SIAM), the apex body in India to represent all major vehicle and vehicular engine manufacturers, released data that confirms the aforementioned job cuts. The alarming list of figures go as such: the dealer community has had to let go off 200,000 direct and indirect employees, auto component makers have fired nearly 150,000 people, and auto makers have so far laid off 15,000 workers. It is unanimously upheld that unless something changes promptly, figures of job loss will balloon to 1 million in the short term. Touted to be the worst crisis in two decades, the previous such crisis was seen in December 2000. SIAM data also revealed that 300 dealerships have shut down in recent times and that one million jobs have been hit in the auto component manufacturing industry. The Director General of SIAM went on record to say that it was the worst slump witnessed by the auto sector in the past 19 years. The SIAM data only underscore the severe crisis the Indian auto sector is in. Apart from the massive job cuts, and further still warned, manufacturers look to halt production.
The reason behind the auto sector's downturn is low demand caused by lack of credit for car buyers and uncertainty due to upcoming regulatory changes. Additionally, lack of financing has compounded matters for the Indian auto industry. SIAM's Director General Vishnu Mathur made a pertinent point while addressing the media in New Delhi that the auto industry needs a revival package from the government. Indeed, in times of crisis, when the private players have to slow down, it is expected that the government will take steps to address crises which are normally major aspects linked to the numerous other less visible aspects which are also inevitably out of order. After the meeting with Union Finance Minister Nirmala Sitharaman recently, it is expected that a revival package will come soon. Talking about the pioneers of the automobile industry, R C Bhargava, Chairman, Maruti Suzuki India, is hopeful of the government stepping in to help after prolonged reluctance. Along with SIAM's Director General, Maruti Suzuki India's chairman was also part of the delegation of other senior industry executives who called on Finance Minister Sitharaman to appeal on behalf of the whole sector. Their key demands included a reduction in the GST rate from the current 28 per cent to 18 per cent. SIAM also put forth a long-standing demand for India to have a vehicle scrappage policy that incentivises the consumer to replace their existing vehicles and buy a new car in shorter cycles. The government had indicated a lack of enthusiasm for these proposals lest other sectors also come seeking similar concessions. But now that the automobile crisis has now taken on a very grave tone, the Modi government is obliged to step in and address the crisis for the beleaguered auto sector. The Maruti Chairman said that he believes that despite several prior requests and demands of the sector having fallen on deaf years, the industry can now look forward to an intervention. And it is likely to come from the highest echelons of the government. In the words of R C Bhargava, "The Prime Minister has become aware and taken cognisance of the things that are happening. And the Finance Minister has also become fully aware of the crisis, and she knows it affects the economy, the budget, tax revenues and everything. So I think we should expect government intervention. But the government has to become aware of all the factors that have happened, like the states imposing higher road tax, insurance, banks doing something. I think all these things have to be attended to. I have confidence that the Prime Minister and Finance Minister - if anybody can make this change - these are the two persons." Although there is no speculation on what the Prime Minister of the Finance Minister would do to contain the crisis from compounding further, some obvious conjectures that can be made is that GST will have a role to play in this exercise. Definitely, it is the impact of the overall economic slowdown that is rearing its head in the automobile sector first.