SHUBHAM

19PGPM058
Q. - Why the auto sector suddenly experienced a more than
30% drop in sales this year?
LIQUIDITY CRUNCH IN BANKS AND NBFC
From past some time the liquidity crisis in banks and NBFC’s which occurred due to NPA (non
performing assets). This is evident by the recent report from the banks which shows that apart from
HDFC and Bajaj Finance no other bank and NBFC shows a growth in consumer loans because banks and
NBFC’s stopped offering schemes where a customer can make a little down payment and remaining
amount is financed by banks. According to the data more than 1/3 of the vehicles bought are through
loans and thus due to this liquidity crunch there is a decrease in consumer loan which leads to a sudden
downfall in automobile industry. To tackle with this liquidity crisis in banks the RBI has decreased its
repo rate by 35 bps recently.

IMPACT OF VARIOUS GOVERNMENT POLICIES

Increase in insurance time period:-

Earlier the time period of insurance was consumer driven but now the government has fixed the time
period of 3 to 5 years for insurance by Supreme Court order. This has increased the one time price that
consumer need to pay.

Switching from BS4 to BS6:-

As per the recommendations by the green tribunal the government decided to switch completely from
BS4 to BS6 by 2020. This has changed the consumer perception because there are tax benefits which are
introduced by the government to promote BS6 emission standards.

Super rich tax:-

The effective long term capital gains tax rate for FPIs operating as trusts earning between 2 crore to 5
crore has gone up from 11.96% to 13% while it has increased to 14.25% for those earning over Rs. 5
crore due to which foreign investors seem to sell in Indian stock market further leads to cash outflow
from Indian markets.

Increase in Road tax and Registration charges

INTRODUCTION OF ONLINE TAXI SERVICES
There was a huge surge in automobile industry with the introduction of some online booking taxi
services like “OLA” and “UBER”. These companies experienced a huge growth rate and with this they
were involved in buying lots of vehicles and thus there was an increase in sales in automobile industry.
But after a proper establishment of these industries the demand of automobiles decreased as people
preferred an online taxi more than owning a personal vehicle. The reason was simple - cost effective and
no maintenance required. This caused a plummet in the sales of automobile industry.

CLIMATE EFFECT
Due to recent instances of floods and drought in certain regions across India, this resulted in less earning
of farmers and as farmers are the major consumers for tractor sales but due to economic shortage the
sales went down by 17% in that sector.