Rural Auto Demand In India To Avert 2021 Wipeout

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A two-wheeler factory in India. Pic: IANS

New Delhi/Mumbai: Rural demand has emerged as a green shoot in an otherwise worrisome demand outlook for the Indian auto industry in FY21.

Accordingly, not just accelerating agricultural growth, the fiscal support package along with a healthy monsoon are expected to generate some demand for automobiles that might avert a total sales wipeout in FY21.

Notably, two-wheelers and tractor demand has seen some healthy traction.

Speaking to IANS, Society of Indian Automobile Manufacturers’ Director General Rajesh Menon said: “There is clearly a pick-up in rural demand. We are also seeing some green shoots in demand for two-wheelers, Small Commercial Vehicles (SCVs), and small cars.”

“The agricultural sector package announced by the central government, under the ‘Atmanirbhar Bharat’ initiative, coupled with a healthy monsoon, is likely to benefit the auto sector.”

Nevertheless, he said, the Covid-19 induced economic contraction will make a substantial dent on India’s auto sector. The industry fears that sales might decelerate between 26 and 45 percent on a year-on-year basis in 2020-21.

As per SIAM’s FY21 outlook, auto industry will degrow in the range of (-) 26 to (-) 45 percent, given that GDP growth plunged into the negative territory.

The forecast is, in part, correlated to the prediction of an overall dip in India’s GDP growth rate. Recently, national and international monetary agencies have cited a range of minus 4.5 to 5 percent contraction in India’s GDP growth rate.

However, this initial estimate can change, given an uptick in sales performance during the coming festive season and expected growth of the agricultural sector on the back of a good monsoon.

The auto industry has already witnessed an 18 percent degrowth in FY20 and the likely demand contraction now can only lead to severe production cuts, low capacity utilisation, lack of future investments, and high risk of bankruptcy and consequent job losses across the entire automotive value chain.

The pandemic will definitely have an impact on auto demand in FY21. This can be attributed to a drop in disposable incomes, general sentiment of uncertainty, plummeting economic activities, amongst others,” Menon told IANS.

“As per SIAM’s Outlook for FY21, if the overall Indian GDP growth is negative as stated by the RBI Governor recently, the Indian auto industry will degrow in the range of (-) 26 percent to (-) 45 per cent in various industry segments.”

“The key supply-chain related operational issues faced by OEMs include continued restrictions in some locations where suppliers are based; availability of trained labour who have moved back to their hometowns and villages; delay in clearance of import consignments due to congestion at ports; and demurrage charged by sea ports and container freight stations,” Menon said.

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