The twin challenges before the Indian auto industry highlighted in July 2018 of pollution and congestion have now manifested and resulted in the slowing down of the industry.
The industry is witnessing, for the first time in its history after the opening up of the economy, in the 1990s, declining sales month after month and quarter after quarter, leading to high stock of inventory at the dealer network and forced shutdowns of production to bring down the inventory of unsold stocks. The same has affected all the segments from two- and three-wheelers to passenger vehicles and commercial vehicles.
India Auto Inc has accepted the challenge of leapfrogging to Bharat VI by skipping Bharat V from Bharat IV introduced across the country from April 1, 2017. This gave the industry less than three years to develop, optimise, validate and homologate the vehicles and commence production in in advance of the April 1, 2020 mandate notified for changeover to BS VI emission norms.
The industry also has to manage the inventory of BS IV vehicles so that there is zero stock by March 31, 2019 as BS IV vehicles cannot be registered from April 1, 2019 as per the orders of the Supreme Court, otherwise it would have to resort to panic selling, similar to what was resorted in the last week of March 2017 when the Supreme Court had ordered that no BS III vehicle can be registered from April 1, 2017.
The industry is also bracing itself for meeting the new challenges of developing vehicles for running of cleaner fuels like ethanol, methanol and bio-fuels. The situation is further complicated by different and sometimes conflicting statements mouthed by different policy makers.
The government’s push for electric vehicles with new deadlines of switching of all three-wheelers from 2023 and all two-wheelers below 150cc from 2025 within the targets set for 2030 will have a further adverse impact on market sentiments and investment in the already depressed auto market.
The other challenge of congestion on the roads coupled with NBFC’s liquidity crisis, increase in the ownership cost due to upfront loading of the third-party insurance of five years and higher personal accident insurance has dampened the market with the customer postponing their purchases. The popularity of shared mobility and lack of parking is also driving people away from owning a vehicle.
The twin challenges will lead to continuing of the depressed market conditions unless the government comes up with a stimulus and clear roadmap on cleaner fuels and e-mobility. The monsoon deficit would likely lead to a depressed festive season and revival of the market can perhaps be only expected by third quarter of 2020 as by that time to BS VI emission norms would have become history and clarity on the e-mobility roadmap would have emerged. However, unless the challenge on the twin fronts are addressed, industry may not see double-digit growth as it did not so long ago. Even single-digit growth would be hard to come by.
The author is an automobile and fuel expert, E-Mobility, Strategic Planning & Convener, Centre for Auto Policy and Research