Automobile Sales Register Sharp Decline in India after Currency Demonetisation

Automobile Sales Register Sharp Decline in India after Currency Demonetisation

Indian automobile sector registered lowest growth in sales during December 2016, since the time Society of Indian Automobile Manufacturers (SIAM) started keeping record for combined automobile sales in the country. The impact on automobile sector is due to self-inflicted currency shortage in India. Indian government announced currency demonetization on November 8 and the government wasn’t prepared to deal with massive demand for new currency. Nearly 86 percent of Indian currency was scrapped by the government in a surprise decision to deal with black money.

Prime Minister Narendra Modi had promised the country that it will be a temporary pain but those promises have failed to materialize. The opposition in blaming the government of taking the decision for political gains but there are many people who still support the motive behind the move. Many reports, including one published in New York Times has questioned the benefits of currency demonetization carried out by Indian government.

However, the data that has come up from automobile sector is a major cause of concern. The sales in almost all segments have registered a decline in growth. India is a fast-growing economy and automobile sales have been rising for the past many years. However, a decline in growth could come up as a major shock to government revenue for new vehicle registrations.

Total vehicle sales declined by 18.6 percent in December 2016 from 1.5 million units in December 2015 to 1.2 million units last month. The negative consumer sentiment has hit automobile sector in India.

Data from other sectors will showcase the impact of currency demonetization on Indian economy. Many experts have questioned the move in terms of actual benefit compared to the loss the economy will face. Many small businesses in India have also suffered during the period after the move was announced in November. Many sectors have seen a complete washout for festival season during which they record the best sales of the year.

SIAM Director General Vishnu Mathur said, "This is the highest decline across all categories since December 2000, when there was a drop of 21.81% in sales. The reason is largely due to the negative consumer sentiment in the market due to demonetization. Almost half of two-wheelers sales comes from rural markets, which have been hit hard by demonetization."

Majority of two-wheeler sales comes from rural India and cash crunch has led to lower sales in these regions. People had to endure long queues at banks and cash was scarce for November and December.

The SIAM report further informed, “Passenger vehicle sales declined 1.36% to 2,27,824 units in December 2016 from 2,30,959 units in the year-ago month. For the calendar year 2016, Indian automobile sector sold a total of 21,901,572 units across segments and categories to record a growth of 9.17 percent. The auto sales in 2015 were 20,061,389 units across segments and categories.”

All categories of automobiles in India witnessed decline in sales except light commercial vehicles. Automobile sector still believes that the drop in sales in temporary and things could pick up once the cash is available in plenty. The Indian economy was the strongest growing major economy in year 2016. However, with currency issues continuing well in year 2017, decline in growth is something all economists are sure about. Indian economy managed to prove better than fast-growing Chinese economy in the recent years but an ill-timed move by Indian Prime Minister Narendra Modi could bring in hardships for the country.

In the last couple of months, people have come up in support for Indian Prime Minister but that support seems to be declining as majority of cash has made its way to banks. The government is still confident that it will be able to improve tax collection on some of the money deposited in bank. However, people will have the option to show the source of funds they have deposited in their accounts. In case of legitimate earnings, the government might not see any major improvement in its tax collection.

(This report includes inputs from our reporting staff in India.)


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