The intriguing case of a massive slowdown in the auto sector -Gurbachan Singh

-TheWire.in

Did the auto sector's woes go hand-in-hand with the boom in affordable housing segment under PMAY?

Sales in the auto sector and in related industries have fallen considerably in India. Maruti-Suzuki, the country’s leading car manufacturer, has reported a 32.7% decline in its total vehicle sales. There is a similar situation across the sector, including the two-wheeler industry. The sector has already lost over 300,000 jobs.

What explains the massive slowdown in the auto sector in a short span of time? The usual explanations run in terms of factors like the general slowdown in the economy, the disruption caused by the Ola and Uber facilities, difficulties in getting a loan for purchasing a car or two-wheeler in the aftermath of the IL&FS crisis (and more generally in the NBFC sector since then), the competition from electric vehicles in the coming years and the confusion around BS6 emission standards.

There is indeed merit in such explanations. But they cannot explain the severity of the problem. Indeed, it is all very intriguing.

Why then has so much happened so quickly?

The answer possibly lies in something which has escaped our attention for sometime. It is the massive growth in the affordable housing segment under the Pradhan Mantri Awas Yojana (PMAY) in the last few years. On one hand, spending in the auto industry has declined. On the other hand, spending on affordable homes has gone up substantially. There is some reason to believe that spending has shifted to a significant extent from purchase of cars and two-wheelers to affordable homes in India in the last few years.

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TheWire.in, 6 October, 2019, https://thewire.in/business/the-intriguing-case-of-a-massive-slowdown-in-the-auto-sector

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