The country’s over 96 lakh unit automobile industry is in for a major slowdown, thanks to high interest rates and double-digit inflation, which are expected to continue even in the second half of this year. This has compelled analysts to lower the overall growth projection for the domestic automobile industry from a conservative 8-9% earlier to 5-6% now for the current fiscal.
“The central bank is tightening interest rates to bring down inflation. Since 85% of two-wheelers and small cars in India are purchased on finance; there will be a slump in the industry in next one-or-two quarters. As such the growth is likely to come down to single digit,” said Abdul Majeed, auto analyst and partner, Price Waterhouse. According to Majeed, even financial companies are keeping away from finance as high inflation may lead to higher defaults and hence an increase in their non-performing assets.
Agrees Piyush Parag, research analyst, Religare: “If inflation continues at double-digit for another four-to-five months, the overall growth is expected to come down from 12-13% earlier to 8-10% now and the worst hit would be the two-wheelers and commercial vehicles.”
“High raw material prices have emerged as another factor for decline in sales, more so because most companies renew their supply contracts in the first quarter and the prices of most commodities were at an all-time high during this period,” adds Vaishali Jajoo, senior research analyst, Angel Broking.
As per the revised projection of Angel Broking, the overall auto industry is now expected to grow at a mere 5-6% instead of the earlier projection of 8-9%. While growth in sales of passenger vehicles has been lowered to 5-6% from 8-9% earlier, sales of commercial vehicles is expected to remain flat as compared to the earlier growth estimates of 3-5%. However, two-wheelers are expected to register a growth of 6-7% as it is on a lower base last year when the segment witnessed a decline of 7.92%.
Going forward, even the much-awaited festive season, which will see several new launched including Maruti A-Star and Tata Nano, is not expected to boost the sales in a big way if interest rates and commodity prices do not ease up, feels Majeed.
After a healthy 13.67% growth in 2006-07 at 1,01,23,988 units, the Indian automobile industry witnessed a 4.7% dip in sales in 2007-08 at 96,48,105 units due to over 9% decline in sales of three-wheelers and 7.92% dip in sales of motorcycles.