NEW DELHI: Demonetisation and the resultant fall in demand have dealt the Indian automobile sector a heavy blow with total domestic sales in December dropping 18.66 per cent over the previous year – the worst fall recorded in 16 years.
Data released by the Society of Indian Automobile Manufacturers (SIAM) on Tuesday revealed a decline across segments. The only exception was the light commercial vehicles segment, which grew by a paltry 1.15 per cent.
“This is the highest decline across all categories since December 2000, when there was a drop of 21.81 per cent in sales. The reason is largely due to the negative consumer sentiment in the market due to demonetisation,” said Vishnu Mathur, director-general, SIAM.
Domestic car sales stood at 158,617 units last month against 172,671 units in December 2015, falling 8.14 per cent -- the lowest in the two years since April 2014 when sales declined 10.15 per cent. Total passenger vehicle sales also fell by 1.36 per cent to 227,824 units against 230,959 units a year ago.
The impact was stronger in the two-wheeler segment, primarily due to their larger exposure to rural markets. According to experts, cash crunch due to demonetisation is severe in the hinterlands of the country while regional preferences on transaction modes have also influenced the figures.
“The automotive industry in general has been impacted... particularly in rural areas and regions where cash transactions are typically very high such as the North and East regions. In comparison, the West and South of India have not seen much impact and are also quickly getting back on track,” said Abdul Majeed, partner and auto analyst, Pricewaterhouse Cooper.
“Large two-wheeler players have been impacted mainly due to their high rural exposure,” he added. Total two-wheeler sales tanked in 22.04 per cent during the month, the sharpest decline since SIAM started recording data in 1997, said Mathur. Scooter sales, on a roll over the past few years and one of the primary drivers for overall two-wheeler sales growth, saw the largest decline in 15 years, slumping 26.38 per cent. Motorcycle sales fell 22.5 per cent.
The situation was not much different for commercial vehicles either. The entire segment fell by 5.06 per cent. However, light commercial vehicles grew 1.15 per cent. “The demand for medium and heavy commercial vehicles has been impacted significantly due to negative sentiments of freight operators... The only bright light in this segment is light commercial vehicles which have done better due to some pent up demand,” Majeed noted.
The fall in sales, say analysts, will also have a direct impact on overall manufacturing, with ancillary industries taking a hit if auto production falls. The sector accounts for 7.1 per cent of India’s GDP.