The Auto Sector Crisis Triggers Alarm In The Economy

The auto industry is in the midst of a severe slump. Policy interventions to revive the sector and the economy at large are necessary to stave off a protracted crisis

- M.G. Arun and Shwweta Punj

Virendra Singh, 49, is a concerned man. As the owner of Win Win Group, which operates a chain of Mahindra & Mahindra (M&M) dealerships in Madhya Pradesh, he has had to close eight of his 31 showrooms and lay off 300 people in the past few months. He estimates that his sales have dropped by 10 per cent, with customer footfall plunging an alarming 30 per cent. “Demonetisation and the Goods and Services Tax (GST) took the first toll,” he says. Then came a regulatory shock. “The registration rates of both petrol and diesel vehicles in MP have been increased substantially. For diesel vehicles below Rs 10 lakh, rates have increased from 8 to 10 per cent. For vehicles between Rs 10-20 lakh, the rate has increased from 8 to 12 per cent, and for vehicles over Rs 20 lakh, the rate has doubled from 8 to 16 per cent. There is a similar hike in petrol vehicles too. This is not going to help the already stressed market.” Underlying these is the distress in the rural economy.

The slump in the Rs 8.3 lakh crore automotive industry, which employs around 32 million people (directly and indirectly), is evident in the falling quarterly sales numbers and the closure of nearly 300 dealerships across India. For this to happen in an industry that was seen as a success story—with consultancy McKinsey & Co projecting just last year that India’s passenger-vehicle market would become the world’s third largest by 2021—has been a body blow to the Indian economy.