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Why are car sales declining in India?

We still don’t know much about consumption habits of Indian millennials. The answer to the puzzle of declining car sales might just emanate from there

editorials Updated: May 15, 2019 23:57 IST
Hindustan Times
The automobile industry in India has particularly suffered from regulatory and policy uncertainties(AP)

In bad news for the Indian automobile industry, passenger vehicle sales dropped by a whopping 17.1% in April. The numbers released by the Society of Indian Automobile Manufacturers (SIAM) show that barring one exception, no month has seen a positive growth in car sales since July 2018. Even then, the fall in April was steep and worrying. Some attribute it to the ongoing election season but that can’t explain both the trend of the last one year as well as the scale of the most recent slump. Moreover, the automobile industry isn’t really known to be vulnerable to political vicissitudes as some other sectors like real estate. However, three different factors might be contributing to the trajectory of car sales.

First, the Indian economy isn’t in the pink of health. The growth figure for the third quarter of FY19 was merely 6.6% — the lowest in five quarters. Other indicators like two-wheeler sales and air-traffic growth are also flashing amber. If the slump in car sales is part of this larger story, it presents a worrying picture for the incoming government because private consumption has been a strong pillar of India’s growth story even as investment, government spending and exports have remained volatile.

Second, the automobile industry has particularly suffered from regulatory and policy uncertainties. With growing levels of pollution, India had decided to skip the BS-V emission norms entirely. And then the Supreme Court decided to ban the sale of vehicles conforming to BS-IV standards from April 1, 2020. Now car companies will have to comply with BS-VI standards from 2020 — four years earlier than the original plan. It is no surprise that Maruti has decided to not manufacture diesel vehicles from April 2020. The shift to electric vehicles presents another area of uncertainty. While the government has rolled back its initial unrealistic goal of moving to a 100% electric fleet by 2030, the emphasis on electric vehicles doesn’t square with high-cost batteries and price-sensitive consumers. In effect, both the industry and the consumers have a lot to figure out.

Third, there is a possibility that the advent of the shared economy and the arrival of millennials into adulthood presents a structural break to consumption habits. There is a growing body of opinion that suggests that millennials don’t like owning cars, especially in the US and Europe. However, researchers are now contesting such opinions. We still don’t know much about consumption habits of Indian millennials. The answer to the puzzle of declining car sales might just emanate from there.

First Published: May 15, 2019 23:57 IST