The impact of this stagnation could be deleterious for the Indian economy for various reasons. Firstly, according to the Indian government, the automobile sector accounts for almost half of India’s manufacturing Gross Domestic Product (GDP), a quarter of its industrial GDP and almost seven per cent of the country’s GDP. Slacking of vehicle sales could have a sobering impact on India’s economic growth for 2018-19 which the Central Statistics Office (CSO) will reveal a week after the election results are announced on May 23. The Indian economy grew at 6.6 per cent in the third quarter of 2018-19, its slowest in the last five quarters. In April, the International Monetary Fund (IMF) had projected the Indian economy to grow by 7.3 per cent in 2019-20 – down from 7.5 per cent it had projected earlier.
Impact on auto components
Secondly, if the automobile industry takes a hit, there will be a domino effect on auto component manufacturers and flat steel manufacturers. The auto components industry contributes 2.3 per cent of India’s GDP and has been growing at seven per cent according to government figures. A large number of auto component makers are small players that make more companies and people vulnerable to the slowdown. Upkaar Singh Ahuja, chairman, Swan Automotive, a Ludhiana-based manufacturer of sheet metal parts for passenger vehicles and two-wheelers, told Business Standard, “The situation is akin to what happened after the note ban of November 2016.” To rein in the cost, Swan has been curtailing operations to four or five days a week, depending on the schedule of its customers. Owing to the uncertainty ahead, it has also postponed the plan to set up a new facility. Swan gets a big share of its revenues from Honda Motorcycle and Scooter India, and Maruti Suzuki India.
Job scene to worsen
Thirdly, if people don’t buy enough cars and two-wheelers, India could be staring at an employment crisis in the sector. Government figures show that the automobile sector provides direct and indirect employment to 32 million people. The auto components and after-market segment provide employment to another three million people directly and indirectly. Any downturn in the industry could potentially jeopardise India’s uncertain employment scenario even further. A proprietor at another auto component maker in the Pune-Chinchwad belt, which has Tata Motors as its key customer, told Business Standard that he had to let go of close to two dozen contract workers over the past six months following a slowdown in truck sales after implementation of the axle norms in November. Ahuja and the other supplier reflect the predicament facing small suppliers as India’s auto industry grapples with the one of the worst slowdowns in many years. And that may be bad news
for the new government that comes to power in India.