In the last decade, Indians fell in love with automobiles. However, recent reports suggest that this honeymoon is coming to an end. This love of cars and motorcycles has resulted in tremendous growth for the automotive industry, as can be seen all around us. We see expensive, new dealerships, petrol stations, and clogged-up traffic.
Recent reports indicate that a certain segment of the automotive industry is calling for government handouts. The media also seems to echo this. When one sees the traffic-clogged roads in urban India, one wonders whether a shakeout of some automotive brands or even their disappearance would be bad for the urban Indian economy.
Should the government step in to help the automotive sector?!
The Society of Indian Automobile Manufacturers reports that Indian auto sales declined by 16 percent in April compared to the previous year. Nearly half a billion passenger cars worth $5 billion and 3 million two-wheelers worth $2.5 billion are still unsold in dealerships.
Any slowdown in the sector will have a negative impact on local communities and jobs. The slowdown is a result of years of phenomenal growth. Auto manufacturers and dealers may not be sympathetic to the situation, as they have benefited from the boom.
The government may be reluctant to bail out an industry that is in need of a correction, even though taxes on auto sales account for a large percentage of their revenue.
A Reason Against Bailouts for the Automotive Sector
There are many reasons why Indian policymakers and the government should not interfere and let the market take its course.
- The slowdown in sales and the decline in car numbers may be due to consumption fatigue. There are only a limited number of cars that Indian roads can handle, and Indians don’t upgrade their older cars as often as Westerners do. Incentivizing consumers to boost demand artificially will only delay the inevitable.
- Parking wars are common in residential areas, where cars are densely packed. In Urban India, most smaller apartments and homes don’t have parking spaces. This forces residents to park along narrow roads. When cars park alongside, the 25-30 foot wide street that is designed for two vehicles to pass each other becomes jammed. Karnataka’s Dy. After it was leaked, the Chief Minister’s request that potential car buyers show the availability of parking spots when applying for registration has been quickly forgotten.
- Millennials no longer dream of owning a car. Ride-sharing apps like Ola and Uber, as well as easy access to public transportation, have encouraged a certain segment to refrain from purchasing a vehicle. Some millennials find ride-sharing and public transportation convenient. Others, however, are making a statement by saying that they do not own a car because it is environmentally friendly.
- Slowdowns will test the industry’s resilience, particularly foreign auto giants who have profited from the boom. Market forces will be used to determine which multinationals are in it for the long run.
Public forums are examining the economic impact of a slowdown in India’s automotive industry. Indian society, however, is not as dependent on cars and automobiles as Americans or other Westerners. In urban India, there are more transport options. If Indian middle-class consumers are deciding to drive less, then more power!
Indian automakers have been concentrating on meeting the demand for conventional vehicles and may have become complacent. The Indian automotive industry has hardly innovated in areas such as low-emissions and electric cars, where the rest is moving.
A shakeup in the industry could force some players to look for opportunities in a neglected sector due to growth. It wouldn’t necessarily be a bad idea to have fewer cars on India’s crowded roads.