“Tens of thousands losing jobs as Indian auto industry’s crisis deepens,” screamed as headline of Business Today. If that doesn’t set the alarm bells ringing, then it’s definitely time for everyone involved in the sector to put on their seat belts and hold on tight. The road, according to experts, is about to get more turbulent and with no revival in sight.
Dr. Krishnamurthy Subramanian, India’s chief economic advisor recently dismissed the talk of crisis by saying it was just one part of the economy and the rest of the manufacturing sector is flourishing. He may have wanted to paint a rosy picture, but the reality is far from it and the current state of auto industry is bound to affect our economy and unemployment rate in the long run.
Auto industry: The giant of the manufacturing sector in India
The auto industry makes up for 7.5% of India’s GDP and a massive 49% of the manufacturing sector. But it has an even larger multiplier impact on the economy. More than 8 million people are directly employed in the industry through manufacturing and services. When you consider the drivers, petrol pump employees, finance agencies, the number is a staggering 40 million plus.
The grim reality
There have been reports that more than 3,50,000 employees have been laid off by automobile companies, manufacturers of auto parts, and dealers, in the past four months. There are more cuts imminent with big names like Yamaha Motors, Valeo and Subros. Honda Motor Co, Tata Motors and Mahindra & Mahindra have temporarily stopped production due to lack of demand.
What started the downturn?
Experts say the malaise started in September last year. The industry was looking at the usually fruitful festive season when IRDA announced that buyers would have to buy insurance for 3-5 years. Increase in fuel prices plus added axle loading norms for commercial vehicles compounded the misery. IL&FS defaults were the blow that sent the sector spiraling downwards.
Is there hope?
The unemployment rate in the country stood at 7.51% in July, which is a significant jump from 5.66% in July 2018. Head honchos in the sector have demanded tax cuts and hope for easier access to financing to stall the slump, if not immediate revival. India’s two major auto hubs Gurgoan, Haryana and Pune, Maharashtra are both looking at the bottom of the barrel.
As on 20 August 2019 in a breather, the government decided to go slow on the e-vehicle push for the next few months arguing that it has to be sympathetic to the downturn that has gripped the auto industry.
 
– Authored by a student of Jaipuria Institute of Management