Auto industry in India continues to post sluggish growth with a fall in sales of about 2.6 per cent in February 2019 on the back of continued weak consumer sentiment and increased cost of ownership, said a report.
However, good monsoon, increased agriculture activities, lower interest rates and increased infrastructure and industrial activities have the potential to help the automobile industry to overcome the hurdles, CARE Ratings said in the report.
The automobile sector has emerged as one of the important sectors of the Indian economy, accounting for 7 per cent of India’s GDP and 45 per cent of manufacturing GDP, and employs about 19 million people both directly and indirectly.
A rise in insurance cost, interest costs and liquidity crunch in the market has affected the consumers sentiments keeping them away from buying automobiles, the report added.
Passenger Vehicles sales fell sharply after a temporary spike in January, two wheelers de-growth increased, Commercial Vehicles sales fared better, but also saw weakening of demand, said the Federation Of Automobile Dealers Association (FADA) President Ashish Harsharaj. He also pointed out towards unsustainable high dealer inventory levels, especially in the two-wheeler segment.
Passenger vehicle sales have fallen by 8.4 per cent in February, after experiencing a spike in January, which saw extension of year end stock clearance and few new launches, said the FADA report.
The credit disbursements for automobile industry are expected to remain slightly under pressure during March 2019 due to liquidity crisis in NBFCs and resultant slowdown in credit financing, said CARE Ratings in the report.
However, the demand is expected to rise on account of various government initiative, pick up in construction and mining, increased inter-state trade and reduction in interest rates by the RBI, said CARE Ratings.
Further, the recent rate cut by the Reserve Bank of India by 25 basis point is also expected to provide some stimulus to the auto demand. Nevertheless, concerns on availability of auto components and higher grade fuel required for BS-VI compliant vehicle remain, said the report.