Demonetisation in India: Was it really bad for the automobile industry or not?

Impact of demonetisation on the Indian auto-industry.

Demonetisation in India: Was it really bad for the automobile industry or not?

It has been a year since the government demonetised Rs 1000 and Rs 500 notes and while the initial panic and common man sufferings due to this were huge, the move by Modi government has been appreciated by many. Like it or not it was a bold move, but did the auto-industry really had a bad impact by the demonetisation? If at all anything then demonetisation just stopped the growth of auto-industry temporarily but did not have any adverse impact. Before Prime Minister Narendra Modi announced the ban of notes in November 2017, the sales of Passenger Vehicles grew by 11.02 percent in April-October 2016 over the same period in 2015. The overall Commercial Vehicles segment registered a growth of 6.92 percent and Two-Wheeler sales were growing at about 16% during the financial year.

Post the announcement of demonetisation in India, the growth of passenger vehicles fell below double digit growth and the month of December 2016 saw cumulative automobile sales in India declining to lowest in 16 years but sale of passenger vehicles was still growing at 8.59% in April-December 2016 over the same period in 2015. Within the Passenger Vehicles, Passenger Cars, Utility Vehicles and Vans grew by 2.46 percent, 32.99 percent and 1.67 percent respectively during April-December 2016. Medium and Heavy Commercial Vehicles sales decline by 1.82 percent and two-wheeler sales were still strong posting 10% growth over sales in April-December 2015.
The month of December 2016 saw India’s top-three passenger vehicle and two-wheeler manufacturers posting decline in its sales. Pravin Shah, then President and Chief Executive, Automotive sector, Mahindra & Mahindra had clearly said these were short-term effects as buyers have postponed purchase decisions till cash comes back in circulation. But experts also believe that December is usually a slow month in terms of sales with the end of festive season and new-year coming in the sentiments to buy a new vehicle is generally less. In fact as per SIAM data, sales of passenger cars in December 2014 was further less than sales of passenger cars in December 2016 when the note ban was announced.

Luxury car maker, Mercedes-Benz India also said that footfalls in its showrooms were over 60% down in November and December 2016 but was sure that the trend will be “normalised” in the next one or two months with people “just postponing” their purchases as the policy decision had an “emotional impact”. Roland Folger MD & CEO had said “Not accepting cash sales may impact negligibly on sales.”

Demonetisation did not hurt the luxury car makers in India as much as the over 2.0L diesel engine ban in Delhi/NCR did or what the shift from BS-III to BS-IV did to the two-wheeler industry. “Three months into Demonetisation, and we can slowly see that the market is reviving with increased footfalls and customer enquiries,” commented N Raja, Senior Vice President, Sales &  Marketing, Toyota Kirloskar. In fact two months into note ban, seven out of nine carmakers reported strong double-digit growth.
Yes! This move by government did slow down sales in the period November 2016 January 2017 and from February things were back on track and by the end of the financial year the automobile sales in India had crossed 3 million milestone and other than the exception of three-wheelers every segment had resulted positive growth. One can always want more sales and growth for more profitability but over all to the automobile Industry in India Demonetisation did not have any severe impact in both urban and rural Indian markets.

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First published on: 08-11-2017 at 12:04 IST