Is the Decline in Auto Sales a Hint at a Slowing Indian Economy?
The recent decline in auto sales in India is often cited as an indicator of a broader struggling economy. In this article, we delve into the reasons behind this trend and its implications for the nation's economic health.
Reasons for Declining Auto Sales
One of the primary reasons for the decline in auto sales is the economic and social impact of the ongoing pandemic. Due to job losses and pay cuts, many consumers are currently trying to save their cash to cope with the pandemic situation. This has led to a postponement of costly purchases, including cars (see Reason 5 below).
1. Poor Infrastructure and Road Conditions
Reason 1: The poor condition of roads in major cities contributes to a decline in auto sales. This makes driving conditions less conducive, affecting consumer confidence in purchasing vehicles.
2. Rising Fuel Costs and Parking Issues
Reason 2: Increasing fuel costs and the lack of adequate parking spaces in urban areas have also dampened consumer enthusiasm for buying and using automobiles.
Reason 3: The time required to find and park in urban areas, especially for shopping and leisure, is another factor contributing to the decline in car sales.
3. Exorbitant Parking Fees and Unsafe Driving
Reason 4: Exorbitant parking fees in malls and theaters, combined with reckless driving by two-wheeler riders, have further discouraged potential buyers from purchasing cars.
Money Crisis and Economic Impact
The decline in auto sales is a clear sign of economic money crises, with no purchasing power left. This is due to several factors, including:
1. Increased Non-Performing Assets (NPAs)
As banks grapple with huge NPAs, they are reducing loan facilities to individuals and businesses. This limits the ability of consumers to finance large purchases like cars.
2. Uncertainty About the Future
Uncertainty about future prospects due to the economic downturn has led to a strong reluctance to spend money, impacting sales across multiple sectors.
3. Heavy Taxes on Cars
The imposition of heavy taxes on vehicles has made them more expensive, further reducing their appeal to potential buyers.
Government's Role in Easing Economic Conditions
To address these issues and pull the economy back from the brink, the government must take action by injecting cash into the economy instead of merely providing subsidies. This could involve easing fiscal policies, providing tax breaks, and encouraging private investment.
Industries Affected and Economic Slowdown
The decline in auto sales is indicative of a more general slowdown in the economy, particularly as:
1. Government Cuts
The government cut down on its expenditure in the last quarter of fiscal year 2018/19 to control the fiscal deficit. This has been further compounded by a decline in private investment. Due to these twin factors, economic growth has slowed down, and the non-banking financial company (NBFC) liquidity crisis has not helped matters (see Reason 7 below).
2. Slowdown in Commercial Vehicle Sales
The slowdown in commercial vehicle sales can be attributed to the overall slowdown in core sectors. An increase in axle load norms for existing vehicles and reduced credit availability due to liquidity issues affecting NBFCs, the principal lenders of commercial vehicles, have further compounded this issue. Higher insurance premiums, fuel prices, and interest costs have also affected the sales of passenger cars. Additionally, buyers are postponing purchases due to upcoming elections (see Reason 6 above).
Impact on the Two-wheeler Market
Interestingly, for the first time in many years, the sales of two-wheelers have also declined. While the reasons are similar to those affecting the four-wheeler market, there is an additional factor: the West Bengal government stipulated that two-wheelers can only be sold to those with two-wheeler driving licenses (see Reason 8).
8. Liquidity Crisis in the Auto Lending Industry
The decline in auto sales is predominantly due to the liquidity crisis in the automobile lending industry. This has made it difficult for potential buyers to secure financing for car purchases.
Overall, the decline in auto sales is a significant indicator of a broader economic slowdown and underscores the need for immediate action from the government and financial institutions to stabilize the market and boost consumer confidence.