UTKARSH SWAROOP

19PGPM064

ECONOMICS ASSIGNMENT

Why automobile sector saw 30% decline in its sale in the current year?

Automobile sector saw 30% decline in its sale this year due to the following reasons

1. Due to liquidity crunch in non banking financial companies (NBFC's) because non banking
financial companies are a key components in lending financial supports in rural and semi rural
areas of the country.
2. Banks are reluctant to lend money to the NBFC sector which in turn with its massive presence in
the rural areas could revive the declining market.
3. Customers are also expecting to get massive reductions in cost of vehicles as BS VI compliant
vehicles can be only sold by automobiles company from April 1,2020.Therefore customers are
expecting to get price cut since companies will be willing to reduce their stock of older outdated
engine vehicles
4. R.B.I has lowered its repo rate by 110 bps points since Feb 2019 but the same has not been
done by respective banks infact most of the banks has only lowered their interest rates by 40bps
in order to maintain their balance sheets and to have some respite from their mounting Non
performing asset value. But due to improper reduction in interest rates by the banks have not
arose a good feelings in the ordinary customer in getting loans for the vehicle which has also
caused a reduction in the sale of automobile.
5. The G.S.T rates on certain vehicles and agricultural components like tractors etc. have been kept
in the bracket of 28% which is very high. Even the road tax and the vehicle registration tax has
been increased which is having a direct impact on automobile sector.
6. The health of the economy is determined by four basic factor namely
(a) Government spending
(b) Foreign investment
(c) Domestic consumption
(d) Export

Since foreign investment is sluggish due to imposition of 2% tax on rich individuals and
weakening rupee value against US dollar has also promoted negative impact about the economy. Since
economy is struggling therefore domestic demand is sluggish hence auto sector is facing a tough time.