|
|||||||
| Slowdown of Automobile Sector in India: Causes and Solutions | |||||||
| Paper Id :
16448 Submission Date :
07/09/2022 Acceptance Date :
23/09/2022 Publication Date :
25/09/2022
This is an open-access research paper/article distributed under the terms of the Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. For verification of this paper, please visit on
http://www.socialresearchfoundation.com/remarking.php#8
|
|||||||
| |||||||
| Abstract | India's automobile sector contributes significantly to the country's gross domestic product (GDP). It is one of the driving forces of the economy, contributing about 49% to the country’s manufacturing GDP(Gross Domestic Product) and 7.5% to its overall GDP in 2020. There has been declining production in the automobile sector caused by various reasons such as a crisis in liquidity position in the NBFC sector, weak consumer demand, people’s preference for electric vehicles, high road tax, etc. The automobile sector, being the employer to a 1.36million people in 2018 has put an adverse impact on the loss of jobs in the sector. Need-based measures should be undertaken by Govt. and monetary authority to set the automobile sector back on right track. The objective of the paper is to explore the factors responsible for the present downward trend in the automobile industry. of India, It tries to find out how the purchasing behavior of consumers is influenced by the changing scenario of the automobile industry . The study is based on secondary sources of data i.e., the Society of Indian Automobile Manufacturers., Indian Economic Survey, and Statista. The paper makes an attempt to give solutions for the revival of the automobile industry. | ||||||
|---|---|---|---|---|---|---|---|
| Keywords | Production, Domestic Sales, Export Sales, Gross Domestic Products (GDP),BS-IV,BS-VI Standards. | ||||||
| Introduction |
The automobile industry is a significant contributor to India's economy and a vital driver of both economic growth and technical innovation. Currently, the automotive industry contributes more than 7% to the total gross domestic product (GDP) and more than 49 % of the manufacturing GDP in the country, and it provides almost 37 million jobs (inclusive of its value chain). Domestic demand and government policies have led to the Indian automotive industry climbing up the ranks to be one of the global leaders.
The Indian auto industry became the 4th largest in the world with sales increasing 9.5 percent Y-O-Y to 4.02 million units (excluding two-wheelers) in 2017. It was the 7th largest manufacturer of commercial vehicles in 2018. The Two Wheelers segment captures the market in terms of demand owing to a growing middle class and a young population generation. In addition, several initiatives by the Government of India and the major automobile players in the Indian market are expected to make India a leader in the two-wheeler as well asfour-wheeler market in the world by 2022.
However, over the past two years, the auto industry is showing a decline in growth. The decline in sales has been observed since 2018 followed by piling of inventory and falling sales in 2019 and a complete shut down in auto manufacturing due to covid-19 in 2020. The vulnerability in the global supply chain and declining demand have been exposed. The present downturn which has begun before since 2018 needs to be analyzed to reverse the trend as it is one of the most important components of our manufacturing sector. The impact of reduced jobs across the value chain, including showrooms, supplies and other stakeholders has been significant, reflecting depression in the automobile sector. |
||||||
| Aim of study | The objectives of the present study are toanalyze the causes behind the slowdown in Indian automobile industry. The purpose of this study is also to find out the reasons of slowdown and further to discuss about the solutions. 1.To discuss the trend of automobile production across the segments in India 2. To analyze the causes behind the slowdown of automobile sector in India 3. To suggest the need-based policy measures for the revival of the sector | ||||||
| Review of Literature | A modest attempt has been made to review some of the literature relating to automobile sector. Rastogi (2013) has analysed the impact of changing scenario of automobile sector, having influenced the purchasingbehavior of the customers. He has ascribed the reason for slowdown and has highlighted the scope of the automobile sector in future and solutions to cope with the new trends. The reasons for the huge decline in the sales turnover and profitability of automobile sector in 2019 are stated as inadequate loans, confusion around BS6 emissionstandards, UBER-OLA factor, proposal for replacement by electric vehicles by Philips & Jose(2020).However, the relative cost advantage in India has attracted increasing FDI from year to year basis under automobile route. The factors such as an overall economic slowdown, liquidity issues, weak consumer demand, disruptive entry of new players are the prime factors impacting plant’s non-working days, employee wage cuts, retrenchments, delayed expansion plans and technology adoption which needs a stronger economic push from the government for the revival of the sector.(Kittu& Betsy ,2020). Auto Index as a proxy of automobile sector is passing through turbulent time because of the transition phase created by stringent regulatoryemission norms of Govt of India which has affected automobile manufacturers cost of production, cost of sales, sales, and the bottom line.( Rama Krishna 2020) Effective Supply chain management will lead to more cost reduction in this segment and thus will lead to more profitability and increasing competitiveness in global market and thereby leading to economic development of the country.(Sultana & Sinha,2017) Azhagaiah. &Gounasegaran(2014) recognized India’s per capita real GDP growth as one of the key drivers of growth of Indian automobile industry. The issues relating to taxation, land acquisitions, labour reform and skill development for the automobile industry should be addressed by GOI by setting up Task Forces in future for the growth of automobile sector. Increased economic growth along with increase in income in the Indian economy had contributed towards increase in the trend of production and sales in the past, yet there is untapped potential demand in the sector for further penetration. Jimmy Corton&Gaddam (2017) Pramod Kumar Patjoshi , 2020, examined the growth of segmentation-wise production and sales trends of the Automobile sector and also analyses the impact of the growth of automobile production on the performance of the Automobile sector in India from 2001-02 to 2018-19. The analysis of automobiles production found that, automobiles production was 5.32 million in 2001-02, which increased to 3.09 million in 2018-19 with an overall growth of 482%. This shows India has an emergent market prospective for automobiles due to an increase in demand in the recent past. The number of productions of Two Wheelers is highest than that of other segments, whereas the production of Commercial Vehicles is lowest for the entire study period. The Sales of Domestic automobiles were 5.25 million in 2001-02. It increased to 26.27 million in 2018-19 with an overall growth of 400.06%. This shows the automobile industry has performed extraordinarily over the span of 18 years. The correlation analysis found that Production of all four segments of automobiles is highly correlated with that of Sales of automobiles. |
||||||
| Main Text | Conceptual Framework of
Auto Industry
The following diagram shows
the classification of automobile industry into four categories such as
two-wheelers, passenger vehicles, commercial vehicles and three wheelers which
are further classified into various categories.
|
||||||
| Methodology | The study period is from 2009 till 2020. The histogram and pie chart are used to analyse the trend as well as market share of different auto segments. Production and Sales data are analyzed to understand the trend and impact on growth. The factors responsible for slowdown are analyzed by taking into consideration on economic, social and political factors.Secondary data sources were used for collecting information necessary for this study. The major sources of data are Indian Economic Survey, Society of Indian Automotive Manufacturers (SIAM).and several journals, research papers, websites, including the official websites of both the companies and other agencies, Annual reports, etc have been referred for various information and data. |
||||||
| Analysis |
Data Analysis &
Interpretation:
 Analysis of Domestic
Market Share for 2019-20. The above pie chart shows the domestic market share
of different segments of the automobile industry. From the above, it is found
that the majority of the market share of 81% has occupied by the Two Wheelers
Vehicles segment. The Passenger Vehicles, Commercial Vehicles and Three
Wheelers Vehicles segment have occupied 13%, 3%, and 3% respectively. Regression
Analysis: Total Sales as the dependent variable and production of
different segments i.e Passenger Vehicles, Commercial Vehicles, Three Wheelers
and Two wheelers are independent variables.  The R2value indicates that the predictors
explain 100% of the variance in Sales. The adjusted R2 indicates that 100% of
the variation in Sales of automobiles is clarified by the different segments of
productions included in the model. The F-statistics value of 8106.63 (P<0.05)
shows that the different segments of productions are jointly statistically
significant at 5% level. Therefore, the null hypothesis is rejected. The
regression result indicates that the model discloses the statistically
significant association among Sales and Production of Passenger Vehicles (p
value- 0.005), commercial vehicles (p value- 0.045), three wheelers (p value-
0.013) and Two Wheelers (p value- 0.00)(Sig. < 0.05). However, the Sales are
statistically insignificant association with Production of Commercial Vehicles
and Three Wheelers (Sig. > 0.01).  The GDP growth rate is influenced by
automobile sales in India. The recession and pandemic Covid-19 affect the
automobile business from 2018-19 in India which ultimately impacts the GDP
growth rate. GDP Contribution by Automobile Industry The below table explains the contribution of
automobile sector towards India’s gross domestic product for last six years.  Source: Press Information Bureau, Government of India, Ministry of Heavy Industries & Public Enterprises / SIAM Reasons behind the Slow-down of Automobile
Sector in India The automotive industry in 2019 was in one of
the most horrible situations with a decline in sales and a piling of
inventory.One of the reasons for the reduced growth sector is the crisis in
liquidity of non-banking financial companies’ sector, which restricted the
demand for automobiles. NBFC makes credit outside conventional dealers by means
such as collective investment vehicles, broker-dealers or funds that invests in
bonds and money markets. The decision of the IRDA to increase the premium of
third party insurance in 2020 and rising road tax have affected the demand for
two wheelers significantly as it affected the customer’s sentiment. Another
reason is rise in the price due to high insurance cost along with rise in GST,
thereby increasing the acquisition cost by 2-5% which has resulted in reduced
demand. The demand for a commodity depends on
expectations of future environment. Customers are also postponing their
purchase decisions due to various considerations, including an expected fall in
Goods and Service Tax (GST) rates, and the liquidation of BS-IV stock and
building of new inventory with BS-VI norms will give some advantage for
production and sales. Expectation of customers regarding discount in the
festive season has also been responsible for the postponement of demand these
factors are other reasons behind the auto slowdown.Government of different
States have declared incentive for switching to electric vehicles from prsent
petro and diesel vehicles by 2030 is also responsible for declining demand on
the ground of reducing pollution.In upcoming year, Indian auto Industry is set
to major changes in the form of electric vehicles and intelligent transport
system with aims to avoid traffic congestion, fuel dependency, air & noise
pollution etc. Govt of India puts a target of 100% electric vehicles fleet on
road by 2030. Lack of a clear migration policy towards
Electric Vehicles (EV) creates confusion among buyers, deficit monsoon and
liquidity crunch in the economy are also contributing towards a reduction in
auto sales. Nowadays, the fees of gasoline were
increasing rudely, making it tough for consumers to preserve their use of
vehicle car. The clients are continuously trying to find substitutes for fuels,
which has increased the demand for CNG and LPG automobiles. Various reasons
such as the Pandemic Covid-19, Industrial slow down and loosing of employment,
Govt norms etchave reduced the earnings of the middle class, thereby creating
difficulties to pay for fuel price to maintain a Vehicle. The increased availability of automobile
rentals, tech-led disruptions like shared mobility from firms such as OLA and
UBER, promotes consumers to rent vehicles instead of buying them. Periodical
changes of Govt rules and regulations also play an important factor in the auto
industry. Suggestions for the future A strong economic impulsion is also needed
from Govt to bring positive response back to environment, help the banking
sector to improve liquidity situation and set up a clear and sustainable long
term policies. Auto industry is a demand-driven industry, and therefore the
government should take steps to boost the demand by reducing the costs of
automobile as well as by carving out a clear and transparent policy for
introducing the new technology and for replacement of electric cars. It
includes: revising the GST, either by modifying the slabs (from 28% to 18% on
vehicles), or, if that is not possible, by removing the cess. There should be a cut in rates in interest
rate by RBI, following cheap monetary policy so as to boost demand in the
market. The industry also needs to stress the need for a stable overall roadmap
towards the transition to Evs which has made the auto industry nervous,
especially after taking part in thorough discussions with the Department of
Heavy Industries for framing FAME (Faster Adoption and Manufacturing of
Electric Vehicles). Further changes in targets for the
introduction of Electric Vehicles (EVs) would increase the country's import
bill and damage the current components manufacturing ecosystem. This will also
result in significant job losses. The need of the hour is to ensure a smooth
transition and the creation of a strong local supply base.
|
||||||
| Conclusion | It can be concluded from the above study that the demand for vehicles is also reliant upon various elements such as convenience and cost of finance, fuel price, vehicle density, the demographic shape of the marketplace, and earning capability. Thus, there is a huge potential market for automobiles that is yet to be tapped through the developments with the use of new technology. Any industry always passes through phases of ups and down. But the down phase can be reduced and be revived by introducing innovations through research and customizing the new products to the taste of the new generation buyers..As pointed out by Schumpeter , innovation is the key to trigger development.It may lead to satisfaction of the customers and an increase in sales. Govt policy should be flexible so that it will attract the customer and vehicle-making producers to produce and selling of more vehicles. Automobile Industry Contributes 5.7% to 7.5% of the Indian economy's GDP from 2014 to 2020. As per the analysis there is declined growth rate on vehicle manufacturing sector comparing the year 2017 to 2020. There is a massive decline in sales and profitability in the automobile sector in the year 2019 and 2020. The Decline was due to less profitability, Pandemic Covid-19, difficulty getting loan, transition of vehicle from BS-IV to BS VI emission standards and high inventory care and the introduction of electric vehicles. The Automotive Mission Plan 2026 of the government is aimed at bringing the Indian Automotive Industry among the top three of the world in engineering, manufacture and exports of vehicles & components; growing in value to over 12% of India's GDP during the next era. Hence in the future, there is large scope in Indian Automotive Industry. Investment in the research and development in developing sustainable fuel will not disturb the existing model as well. | ||||||
| References | 1. Philip, B. &Silbert, J.S.V( 2020). Propitious Contribution of GDP and Performance Assessment in Automotive Sector-Be Fence with Indian Economy,International Journal of scientific and Tchnological Research,volume-9,Issue-4,April2020,pp2405-2409
2. Rastrogi, A.K. & Gupta, N.G.(2013). An Analysis of Indian Automobile Industry Slow Down as an opportunity for new Development. Available ,Interntional Journal of Research in Commerce,IT and Management,vol(3),2013,Issue no10,pp36 -40
3. Dr. R. Azhagaiah& Dr. R. Azhagaiah.(2014). Financial Performance of Automobile Industry in India, International Journal of Scientific Research,Vol-3,Issue-1,2014,pp67-68
4. Dr.Sultana,M. & Prof. Sinha, R.K .(2017). Economic Impact and Strategic Analysis is adopted by Indian Leading Automobile Companies,International Journal of Advancement in Engineering Technology,Management and Applied Sciences,vol-4, issue-4,2017,pp66-68
5. Y.Rama Krishna.(2020).Causal Effect of Economic Indicators on Indian Automobile Sector, International Journal of Economics and Financial Issues,10(2),2020,pp 81-86
6. Jimmy CortonGaddam. (2013). Analysis of total factor productivity growth of automobile Industry in India. Global Journal ofCommerce and Management Perspective,Published by Global Institute of Research and Education,vol-2(5),2013,pp-34-41
7. P.Pramod Kumar.(2020). Impact of Growth of automobile Production on Performance
of Automobile Sector in India.Adalya Journal,Vol-9, Issue4,pp416-424
8. Society of Indian Automobile Manufacturers. Available from: www.siam.in
9.FICCI,2019,Indian Automobile Sectorhttps://ficci.in/SPdocument/23161/Sector_Report-Automobile_%20Sept%202019.pdf |
||||||
