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In darkness of demonetisation, some light for automakers towards south India

autos Updated: Mar 10, 2017 11:02 IST
Gulshankumar Wankar
Demonetisation

Sales of passenger vehicles (PV) dropped by 7% in north India but grew marginally (0.6%) in eastern and (3.6%) western regions. In the five south Indian states, the sales grew at 8.9%, according to a Kotak Institutional Equities report, based on the SIAM numbers for the Q3 of financial year 2016-17.(HT File Photo)

Sales of cars and bikes in southern India were less affected by demonetisation as compared to other parts of the country, data by Society of Indian Automotive Manufacturers (SIAM) shows.

On November 8 last year, Prime Minister Narendra Modi weeded out 86% of the currency in circulation, triggering a major cash crunch across the country. Purchases of two-wheelers and vehicles in rural India, which are largely made in cash, were worst hit.

Sales of passenger vehicles (PV) dropped by 7% in north India but grew marginally (0.6%) in eastern and (3.6%) western regions. In the five south Indian states, the sales grew at 8.9%, according to a Kotak Institutional Equities report, based on the SIAM numbers for the Q3 of financial year 2016-17.

Even in the two-wheeler department, sales in southern India also did not budge to the pressure of demonetisation and raced at 13.42% in Q3, while the national average dropped by 2.65%.

Abdul Majid, PricewaterCoopers’ partner, explains the gap: “People in south India have always preferred to pay by cheques and transfers over cash, which is why the demonetisation did not affect their plans to buy a new car or bike.”

As the cash crunch grew in the following months, the narrative of the note ban changed from eradication of black money and corruption to promotion of cashless and digital payments. Majid thinks south India had more cushion to face the impact of the November 8 announcement than the north.

“All the states in south India have better literacy rate than those in north India. That’s why, there’s more internet penetration, especially in cities like Chennai, Bengaluru and Hyderabad which are major IT hubs and drive most of the sales in the region.”

Amit Kaushik, managing director and India head of UrbanScience, said, “North India has a larger section of people dealing with real-estate business than south India. Sales in Delhi-NCR, which contribute majorly to north India’s numbers, took a big hit by demonetisation.”

But did the automakers really see a silver lining in the south for sales?

Tata Motors said demonetisation had “marginal” effect on its passenger vehicle sales. In an emailed response to HT, Mayank Pareek, president of Tata Motors passenger vehicle business unit, said, “Since November 2016, our sales have grown by 21.6% over the same period last year. We have not seen a marked difference across varying geographies in this trend.”

RS Kalsi, marketing and sales head of Maruti Suzuki, told HT: “There was a temporary dip in the month of November, but that is far behind us now. And in December we did very well, so did we in January and February.”

Was there any regional trend observed? “We do that analysis. However, right now the growth momentum is across the country,” Kalsi said.

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Commercial vehicle sales were not indifferent to the note ban, but there were with no regional trends.

“These vehicles are mostly bought via finance, and there are many finance options available across the country,” said Majid.

Since the major shifts were seen only in the non-commercial vehicle segment, it vindicates what automakers presumed: Many households are not cancelling but only delaying their plans of buying a vehicle.

Pawan Goenka, Mahindra and Mahindra managing director, told PTI on Thursday its auto and tractor sectors were “in very high momentum” in September and October, just before demonetisation kicked in.

In December, the note ban plunged India’s monthly growth to a 16-year-low of 18.66%. Goenka said according to the M&M’s estimates, auto industry lost about 10% revenue or around Rs 8,000 crore during the economic crisis.