The negative news about the drop in car sales for 2012-13 at 6.7 per cent, being the highest in 10 years, is not entirely unexpected. The decline in March alone was 22.5 per cent year on year for cars, and for motorcycles it is 8.3 per cent, reflecting the continuing sluggishness of the economy and lack of consumer confidence despite the efforts of the finance minister to put the economy on the growth track. The demand for goods carriers is even more depressed, down 29.7 per cent year on year. People usually graduate from motorcycles to small cars and then on to bigger cars, so the drop in two-wheeler sales reveals that consumers are not buying due to inflation, job uncertainty, high interest rates, etc.
The auto industry, like the housing industry, plays an important role in the economy. It accounts for four per cent of GDP and is expected to go up to 10 per cent, according to the Automotive Mission Plan. It provides jobs to about 1.95 crore people, both directly and indirectly. The government, too, has protected the industry, even in the free trade agreements with car-exporting countries like Japan and South Korea, though it is under pressure now to give in to the demands of the European Union to include cars in the FTA currently being negotiated. This would be a setback to the already struggling Indian auto industry, apart from being a reversal of the government’s auto policy.
The future, however, according to the Society of Indian Automobile Manufacturers, holds out better prospects with the finance minister hoping the economy grows six per cent and the Cabinet committee on investment clearing certain projects. But that is still in the future.
The government can, in the meanwhile, take measures to provide level playing fields to the auto industry which, according to SIAM, faces higher costs due to the embedded tax structure, high finance cost, state-level levies and infrastructure inadequacies, etc.
The government can reverse sentiment somewhat as the largest single owner of vehicles through the 54 state transport undertakings, which include eight government departmental undertakings and 10 municipal undertakings. According to the report of the Sub-Group on State Road Transport Undertakings, formed under the Working Group on Road Transport constituted by the Planning Commission, all of these own 1,47,000 buses as on March 2011. Of these, around 23,000 are over-aged buses and, if the state government undertakings purchase new buses and upgrade others, this could provide some help to the industry and reverse sentiment.