Automotive Industry Steers Forward In Low Gear
Dalal Street Investment Journal|July 19, 2021
Just as it was bouncing back after the easing of lockdowns following the pandemic, the automotive industry has once again been hit hard on account of the second wave which has slowed down both production and demand. So, what does the future hold for this stricken industry? Are there any triggers to quicken the pace?

The automobile industry in India is the world’s fifth-largest. Given that, the automotive and allied companies have pulled up their socks to increase their production and the sector foresees accounting for 65 million new jobs in India. The automotive industry also benefits from global supply chain rebalancing, government incentives to increase exports, and technology disruptions. These developments will contribute in creating opportunities at all levels of the automotive value chain. The Indian automotive industry, including component manufacturing, is expected to reach ₹16.16-18.18 trillion (USD 251.4-282.8 billion) by 2026.

Data released by the Department for Promotion of Industry and Internal Trade (DPIIT) indicates that the industry attracted foreign direct investment (FDI) worth USD 25.40 billion between April 2000 and December 2020, accounting for 5 per cent of the total FDI during the period. The Government of India has been keen on boosting foreign investment in the automobile sector and has given a nod for 100 per cent FDI under the automatic route. In the recent Union Budget 2021-22, the government announced the launch of a voluntary vehicle scrappage policy, which is likely to push up the demand for new vehicles through the removal of old and unfit vehicles.

Additionally, the Union Cabinet has outlaid ₹57,042 crore (USD 7.81 billion) for automobiles and the automotive components’ sector through the production-linked incentive (PLI) scheme under the Department of Heavy Industries. However, since March 2020, the Indian automotive industry has been under pressure due to a series of unprecedented problems which have been responsible for shrinking production, productivity and sales. Uncertainty has been hovering over the automotive industry due to the transition to BS-VI norms, the coronavirus pandemic, nationwide lockdowns, supply chain constraints, and labor migration.

Revival and Slump

The year commenced with zero production and negligible sales but the sector managed to bounce back faster than expected with sequential growth in month-on-month sales. The revival can largely be attributed to pent-up demand, preference for personal mobility during the pandemic, easing of supply chains, labor availability, new launches, pushing up of stocks at dealerships, and the high expectations from the festive season towards the end of the year. Unfortunately, the second wave of the pandemic put a spanner in the works and the automotive industry has had to slacken its pace once more.

Industry Performance

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