The crisis at Infrastructure Leasing & Financial Services, which began in November last year, led to a liquidity crunch at non-banking financial companies, sapping demand across sectors. India’s gross domestic product (GDP) growth in the April-June quarter of 2019-20 was only 5 per cent — slowest in six years.
Manufacturing GDP grew only 0.6 per cent. The reason for its anemic growth was the automobile
sector, which accounts for 49 per cent of manufacturing GDP. Auto sales in India have been on a decline for 13 months now. Passenger vehicles sales plunged to their lowest in two decades in July.
Sihag was alluding to the remarks of Pawan Goenka, managing director, Mahindra and Mahindra, who said, the Society of Indian Automobile
Manufacturers (Siam) will try building a consensus on retail reporting of sales data as against the current practice of wholesale (dispatches to dealers) data reporting.
“I fully agree that reporting retail data is the right thing to do. I have requested the executive committee of the industry body to see if we can build a consensus on it. The retail reporting will certainly bring more discipline,” said Goenka.
Sihag assured industry leaders that the government was actively considering the issue of reduction in the goods and services tax (GST) on automobiles. The next GST Council’s meeting is on September 20 in Goa.
The industry, however, should not depend on government bailout during a crisis but instead use such lean periods as opportunity to reinvent itself, he said.
“Slowdowns are not a bad thing they are the nurseries of capitalism. In the larger market system it is established as a core feature of a capitalist economy. The industry should learn to live with the slowdown and treat it as normal business activity and internalize it.
He also took a swipe on the industry for calling it an unprecedented slowdown. “I haven’t seen any data or study that says this slowdown is any different from the previous ones,” said Sihag. As far as the overall economy is concerned this is no different from what a normal slowdown is, he added.
Ashok Taneja, managing director, Shriram Pistons & Rings, disagreed. “In the past three decades that I have been associated with this industry, I haven’t seen a simultaneous drop in all the segments. It’s a secular, across-the-board slowdown affecting all sectors,” he said, adding that “a part of it is self-inflicted”.
“We had so much messaging on e-mobility for example. It confused the manufactures, pushing everyone into a wait-and-watch mode. It was avoidable,” said Taneja.
He pointed out that the previous during the previous slowdowns, the reaction was very fast, referring to the 4 per cent reduction in excise duty which helped demand bounce back immediately.
“It seems that the fiscal deficit target has become an issue that cannot be touched. When the economy slows down, it is time to open your purse strings and spend. We can live with inflation but can’t live with lakh of jobs being lost. We cannot live with small manufacturers defaulting on bank loans and creating a further crisis,” he said.
One of the main differences this time is, that it’s confined to the domestic market unlike 2008-09 which was a global financial crisis, said Goenka. “We fell rapidly and came back quickly. This time we have fallen slowly and it will take us a while recover,” said Goenka.
Sihag expressed optimism on the festive season, “The next six months is the spending season. May be this is the last (slowdown) that we will see in this financial year,” he said in his closing remarks.