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Crisis in the Automobile Industry

What is the importance of automotive industry for India?

1. The automotive industry has been facing a slowdown worldwide.

2. This industry was one of the fastest-growing industries as well as an important driver of the manufacturing sector in India.

3. It contributed 7% to India’s GDP in 2018.

4. It provided direct and indirect employment due to its forward and backward linkages with other sectors.

5. It has affected other industries as well such as tyre, steel and steering manufacturers.

Which figures point out the decline in the industry?

1. The current sale of vehicles has been the lowest in the last 19 years due to a drop in domestic demand.

2. Overall vehicle production has fallen down by 8%.

3. Production has been halted to clear inventories.

4. The effect of low demand has hit the domestic component manufacturers due to which they are operating at 70% of their potential efficiency level.

How has this slowdown affected other sectors?

1. Banking sector has been adversely affected regarding credit flows to dealers and consumers.

2. More than 3/5th of the vehicles sold in the country are financed through loans. Therefore, a reduced supply of finance in the country for last one and half years is bound to keep the growth rate of sales at lower levels.

3. Contract and casual jobs have been affected.

4. Technological changes have necessitated restructuring, reskilling and manpower adjustments.

Why does the automotive sector face challenges?

1. Declining demand.

2. Overall slowdown in the economy.

3. Changes in regulatory and technological norms.

4. Supreme Court’s order of extending insurances over a span of three years has affected the pricing structure of vehicles.

5. Shift to the new emission standards under Bharat Stage VI (BS-VI) by April 2020.

6. The new emission standards also require technological overhauling for diesel cars.

7. Differential between the costs of petrol and diesel prices is declining and input costs have been escalating.

Where to focus?

1. The industry needs to transform with minimal disruptions by streamlining the automotive businesses.

2. Innovative processes are required as there is a push towards a transition to electric vehicles.

3. There is a need for development of new skill sets and creation of new earning opportunities for the replaced workforce.