Thursday , 21 November 2019
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Lean Wallets

Middle class Indians have less earnings and cannot buy cars or two-wheelers

Both the Goa government and the Goa Automobile Dealers Association have expressed happiness over appreciable rise in automobile sales following government reduction of registration fee for new vehicles (road tax) by 50 per cent for three months. If it is really so, the association would most likely come up again to the state government with a demand to extend the road tax reduction beyond December. For, this is the only factor that might keep demand for automobiles in the state from dipping again, as the other factors, which have caused automobile sales fall across the country, remain unmitigated. Car sales in India have been falling for the past one year, the fall amounting to more than 40 per cent overall. It is not only car sales. There has been steep fall in sales of commercial vehicles and two-wheelers too. India’s automobile industry has never witnessed such decline. The matter of concern is that the fall is not stopping. No one knows where the industry will find its bottom. So, road tax cuts alone will not help automobile industry or dealers. All those factors that have pulled down the industry to the lower level will have to unwind.    

The automobile industry has been asking for tax cuts and easier access to financing for manufacturers, sellers and consumers. The central government recently announced some measures such as asking banks to lower interest rates on loans for cars and two-wheelers and asking states to review registration fees for new vehicles. However, none of the states reduced registration fee. Goa is the only state that has cut down the registration fee and that too by half. It was indeed an overly generous gesture from a state government that is counting every rupee. The question is whether even these measures of the central and state governments would bring back the situation for the automobile sector to normal in Goa. The answer can only be in the negative, as the situation in Goa cannot correct itself on its own. The situation has to improve nationally.

The automobile industry is one of India’s biggest sectors, contributing 7 per cent to the country’s GDP and directly or indirectly employing 3.5 crore people. Manufacturers of commercial vehicles, cars and two-wheelers have suspended production in many units and retrenched workers. There are no exact estimates of the number of workers losing jobs, but rough figures put the number at 3.5 lakh, as even large industries such as Tata Motors, Maruti, Mahindra and Mahindra and Ashok Leyland had to announce suspension of production. The financial position of the makers of automobiles and automobile components has been causing concern to their owners. More than 200 dealerships have shut shop across the country.

The central government at one stage tried to explain the unprecedented downturn in the automobile industry to the taxi factor. It is true that app-based taxi services have brought about a revolution in public transport. Using smartphone and internet anyone can access taxi services anywhere in the large cities. The app-based taxi services are even facilitating booking of autorickshaws and motorbikes for shorter distances. The government apologists say that the convenience of getting taxis for short and long journeys and transparent online payment and no haggling and uncertainties in access has made app-based cabs a more favoured means of transportation for individuals and families than buying a car or two-wheeler.

It would be wrong to put down the steep decline of the automobile industry entirely to the huge boom in the app-based taxi industry. Owning a four- or two-wheeler is not the same as travelling around in a taxi. Owning a vehicle of one’s own adds to a person’s pride. Travelling around in taxis is a matter of utility; it does not add to the person’s self-esteem or social esteem. The real reason why the auto sales are down is the lean wallet of the middle class Indian today. The earnings of small and medium businessmen and professionals have fallen, which has led to fall in overall consumer demand, not just the demand for cars or motorbikes and scooters. Unless India comes out of the economic slowdown, the end of slowdown in the automobile industry will not be in sight.     

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