LMC Automotive slashes India’s PV sales forecast by 47%

As the Covid-19 crisis enters its next phase in India, the government has extended the country’s lock-down by another two weeks until end of this month. The scenario, however, is taking a completely different shape on the economic front.

India, which was pegged to be the No. 4 passenger vehicle (PV) market in the world by 2021 and set to ride the wave of its adequate momentum and race towards the No. 3 spot by 2026, might just have surrendered that spot. This is mainly due to the global pandemic which has seen businesses being shuttered for more than a month across its states.

According to a latest forecast issued by LMC Automotive, India will see a dramatic 47 percent drop in its PV sales in the 2020 calendar year with volumes dropping from the anticipated 3.55 million units to 1.88 million units by end-December.

This downgrade has been attributed to the big blow that the country’s economy is currently facing, wherein the latest IMF projections have also revised the GDP growth for the ongoing financial year (FY2021) to be pegged at 1.9 percent. India’s GDP was 4.1 percent in last fiscal FY2020.

While Indian PV segment recorded sales of 27,73,575 units (-18%) in FY2020, the start of the new financial year is already a complete washout with all manufacturers reporting ‘nil’ sales in April 2020 due to the entire country being put under a precautionary lock-down, thus allowing no manufacturing or retail activity in the automotive sector to take place.

Now, with various relaxations on the lock-down getting announced even as the number of Covid-19 cases surpassed the 100,000 mark in the country yesterday, the automotive industry is trying to limp its way back to normalcy, albeit with numerous challenges of labour shortfall, supply chain paralysis and a major demand disappearance owing to the lack of liquidity and people fearing losing jobs.

According to Ammar Master, Senior Manager, Asia Pacific Vehicle Forecasts, LMC Automotive, “As the Coronavirus spread across India and the government quarantined the entire country, we were forced to rein in our expectations of the market.”

The economic impact of the crisis could be far reaching with the forecast also revising its future projections for the subsequent years by approximately 30-40 percent, compared to the last outlook announced in December 2019. “The industry will have to live with the effects of the pandemic well beyond the current year,” Master adds.

India could drop to No. 7 spot by end-2020
In the global scheme of things, this would correlate into India losing its current No. 5 position to drop two places to No. 7 by the end of 2020, and will be able to return to pre-2020 levels only two years later in 2022.

This means the avowed target of becoming one of the Top 3 global PV markets will be put to rest for another decade, with the nearest possibilities of fulfilment not coming before 2032 – a six-year setback, as per the LMC forecast.

While Prime Minister Narendra Modi, on May 12, had announced a mega-stimulus package under the ‘Atmanirbhar Bharat’ scheme to jumpstart the country’s economy, the automotive industry has been left wanting for anything substantial from the Rs 20 lakh crore (US$ 260 billion) package.

According to Rajan Wadhera, president, SIAM, “The sector was keenly looking forward to some direct fiscal measures. SIAM has had several engagements with the government at various levels, where specific suggestions were made for demand stimulus including reduction in base GST rates from 28 to 18 percent for a limited period, and an incentive-based vehicle scrappage policy, which would have made it a less painful revival and kick-started the industry.”

“There is an urgent need to support the dealers in terms of improving their liquidity and including them under MSME Act by changing its definition. The Industry would continue to engage with the government and seek direct interventions for revival,” remarked the president representing the industry lobbying body.

Also, in a recent virtual press conference, RC Bhargava, chairman of India’s largest carmaker, Maruti Suzuki India, had said, “No point speculating when we will get back to pre-2019 volumes; this depends on a lot of factors including supply side, demand side, as well as the recovery of the economy. Car sales cannot happen in big numbers if GDP is between 1-2 percent.”     

The Indian automotive industry supports employment of more than 3.7 crore people and contributes to 15 percent of the GST, amounting close to Rs 1,50,000 crore (US$ 20 billion) every year.  The sector was already facing an unprecedented challenge with 18 percent de-growth last year.

As per an assessment done by SIAM on the impact of Covid-19 on demand for vehicles in the current financial year, the Indian automobile sector could have a de-growth in the range of 22 to 35 percent in various industry segments for FY2021 if the overall Indian GDP growth eventually falls between 0 to 1 percent by end-March 2021.