CHENNAI: “I am neither able to pay salary to my workers nor repay the bank loan. The situation is becoming worse. Bankers are not prepared to accept the reality that there is no business but threaten action for defaulting,” says an auto valve components manufacturer at Chennai’s industrial hub - Ambattur.
Displaying abject helplessness, he sighs and says “I don’t know what to do.” He is not the only person who has also been affected by the automobile slowdown. Even the brake component manufacturers have been hit hard. The Ambattur industrial hub with 2,000 units employs around three lakh people. According to the Ambattur Industrial Estate Manufacturers’ Association the State and Central governments should immediately intervene to extend sops to the automobile industry.
What is urgently needed is reduction in GST from 28 per cent to 18 per cent and for sub-contractors, small players from 18 per cent to 5 per cent. Also, the high lending rates should be brought down.
The automobile sector accounts for 49 per cent of India’s manufacturing gross domestic product (GDP) and creates a lot of employment in States, but a slowdown or fall in sales conversely generates unemployment. The prolonged demand slowdown has triggered production as well as job cuts in the sector.
According to the latest figures, original equipment manufacturers (OEMs) have removed about 15,000 temporary workers in the past two to three months. Lack of working capital amid tepid demand has led to closure of nearly 300 dealerships across the country. This has led to over two lakh people losing their jobs, according to the Federation of Automobile Dealers Associations (FADA), the apex national body of automobile retail industry engaged in the sale, service and spares of two- and three-wheelers, passenger cars, utility vehicles, commercial vehicles (including buses and trucks) and tractors.
According to Society of Indian Automobile Manufacturers (SIAM) this is the worst slump witnessed by the auto sector in the past 19 years. The previous such crisis was seen in December 2000. July 2019 sales witnessed a dip of 18 per cent compared to July 2018. Sales of passenger vehicles fell by 35 per cent in July 2019. Around 2.30 lakh auto sector jobs have been lost. SIAM data also showed that 300 dealerships have shut down in recent times and that one million jobs have been hit in the auto component manufacturing industry. At the height of the auto sector’s downturn is low demand caused by a lack of credit for car buyers and uncertainty due to upcoming regulatory changes. That, coupled by a lack of financing has spelt doom for the Indian auto industry.
Other factors that contributed to the slowdown include the insurance regulator increasing the mandatory third-party cover to three years for cars and five years for two-wheelers, thereby pushing up the upfront cost when buying a vehicle, stricter safety norms also increased price of vehicles and from April 1 2019, anti-lock braking systems/combined braking system (ABS/CBS) was made compulsory for cars and two-wheelers.
