|Demand of the question |
Introduction. Contextual Introduction.
Body. Reasons for poor performance of automobile sector.
Conclusion. Way forward.
Boosting India’s economic expansion and creating employment opportunities for millions of youth is one of the major challenges India facing. Make in India was a flagship economic initiative that aimed to transform the country into a global manufacturing hub and, in the process, generate jobs especially through automobile sector. Due to various challenges, automobile sector is undergoing a slowdown.
Reasons for poor performance of automobile sector:
- Economic slowdown: The auto sector slowdown is due to weakening economic growth and a liquidity crunch. Weak economic activity, coupled with escalating global trade tensions, led this slow down.
- Lack of credit: Financial crunch brought by a collapse of some non-banking financial companies that used to account for a significant share of automobile financing. Some banks and NBFCs as a result of bad loans and weak retail sales have decided to enforce stricter restrictions. These restrictions include giving out loans only to people with a high credit rating. This has majorly affected auto dealers and customers.
- Rise in prices: Automakers are also struggling to comply with a host of new environmental and safety policies, which have prompted a hike in vehicle prices, which in turn puts pressure on sales.
- Lack of investment: The subdued demand, recent investments made for transition from BSIV to BSVI, and a lack of clarity on policy for electrification of vehicles, has left the industry unsure of its future and has caused it to stop all future investments. Due to less demand, manufacturers are also having to cut down on production.
- The Rise Of Ride-share Services: Over the past years, there is rapid rise of ride-share apps like OLA, Uber in the country. This has thus affected sales. It has made customers hesitant to buy a vehicle as much of their expenses are reduced with regular carpool use.
- India’s Rushed EV Plan: The Indian government has envisioned a radical push for all vehicles to go fully electric by 2030. Due to this EV roadmap, customers have fears that any vehicle that they purchase could potentially become obsolete in the next decade or so. Thus they are holding on to their current vehicles purchase in order to avoid an unnecessary purchase if EVs are on the way. This is affecting sales in the automobile industry.
- Overcrowding: Due to the growth in the automotive industry in the past decade, more customers were able to purchase vehicles of their own. However, this turned out to be a double-edged sword as more vehicle sales has led to an explosion of vehicles on the roads today. This has led to an immense amount of bottlenecks and traffic jams on our outdated roads. With public transport expansion like metro, customers are hesitating to buy vehicles in order to escape traffic snarls.
- Miscellaneous Factors: Higher and non-standard road taxes, have led to auto-makers to increase prices of vehicles. Apart from this, the GST on automotive parts and vehicles has also added to the woes of the industry. This has eventually led to customers shying away from buying these vehicles and a downturn in sales.
Indian automotive industry’s decline is catastrophic. If major corrective steps are not taken we could see the beginning of a major recession in the world’s 4th largest automotive market. Major reforms and incentives are needed to pull the industry out of this slowdown.