Car sales in India up after 2 years of decline

Wednesday 15th April 2015 05:53 EDT

After two successive years of decline, car sales in India registered a 5% growth in the last financial year (2014-15). But the revival may not be sustained in the current financial year due to an adverse impact on the rural economy after unseasonal rains. Car sales fell 5% in 2013-14 and 8% in 2012-13 as high interest rates and growing fuel prices had dampened buyer sentiment.

The car industry has started showing some positive traction after entry of the Narendra Modi government in May last year. Modi's entry, which revived hopes of an economic turnaround, also coincided with a cut in fuel prices and a marginal reduction in interest rates. These positive factors, coupled with a low base year, led to a growth in sales numbers. But a weak rural economy may play spoilsport. The difficult journey of the rural economy started last year with a deficient monsoon. This year also, unseasonal rains have damaged rabi crops.

The impact of an affected rural economy is already visible on the sales of motorcycles, which grew only 2.5% in 2014 -15, lagging a 25% growth witnessed by scooters. Sales of bikes fell 6% during the last quarter of 2014-15. Analysts said with rural economy playing an increasingly bigger role in the sales of small cars and motorcycles, an adverse demand impact here could hit the overall sales momentum.

“We are already feeling the pressure of a slowdown in the rural economy,” Vishnu Mathur, DG of industry body Society of Indian Automobile Manufacturers (Siam), said. “Sales in the rural regions are critical for growth in some of the important categories, especially motorcycles.” According to some estimates, rural economy accounts for around 30% to total sales of car makers - especially in case of mass-market manufacturers like Maruti and Hyundai, while in motorcycles, the share has reached nearly half.

“Market sentiment in some rural areas has been impacted due to various factors, including the curtailment of national rural employment guarantee act (NREGA) spends, poor crop realisation and moderating wages,” an official at top two-wheeler maker Hero MotoCorp said. “The industry has, therefore, felt some impact in retail off-take in markets such as Bihar and Madhya Pradesh and sugar cane growing areas in Uttar Pradesh and Maharashtra.” The scooter category, however, is somewhat insulated from the agri pressure as it has a big share of the urban market.

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