Auto Industry And Indian Economy

A report released by Society of Indian Automobile Manufacturers (SIAM) gives the data on sale of vehicles in FY19 and projected growth in FY20.

Commercial Vehicles segment saw a growth 17.55% in FY19 and a growth of 10-12% is expected in FY20. This is owing to implementation of stricter Bharat VI norms making the vehicles costlier leading to pre-buying of B-IV vehicles, and an overall expected growth of 7% in GDP and infrastructure.

Passenger Vehicles has seen growth of 3.68% and the projected growth in FY20 is 3-5%. Cars/ SUV/ minivans reported a growth of 2.7% (number of units sold: 3.37 MM). A growth of 3-5% is expected in FY20. Two Wheelers sales rose by 4.86% to 2.12 MM in FY19. A growth of 5-7% is expected in FY20.The factors that have affected the sale of passenger sales are rising fuel prices, higher insurance costs and lack of financing options and farm distress.

The above data is published by Society of Indian Automobile Manufacturers (SIAM), an apex body in India for auto industry.The price of commercial vehicles is expected to increase due to introduction of stricter Bharat VI norms. Bharat VI norms are standards set on emission of polluting gases by vehicles. On the retail side, due to issues in financing options, the sales of vehicles have slowed down. Vehicle sales in India are counted as wholesales, or factory dispatches. The sale of commercial vehicles is an indicator of economic activity and that of passenger vehicles is an indicator of consumption.

The performance of the auto industry is an indicator of the performance of the economy as a whole. Slowdown in the buying of passenger car, means that the consumption in the economy is decreasing. This could also mean that the purchasing power of the population is decreasing.This drop in demand could lead to fall in prices of cars and hence deflation. Deflation, happens when there is no growth In the economy. Slowdown in buying of commercial vehicle suggests that there is less commercial activity in the economy or drop in the economic activities. This also signals drop in economic growth.

There could be other reasons for a drop or rise in the auto demand or prices but invariably it is linked to the overall economy of the state.