Motown sales recover from note ban-induced slowdown

Slowly but surely, the automobile industry that swerved off the growth track when demonetization hit, is shifting back into the fast lane.

The industry was hurt as a significant number of sales, especially in semi-urban and rural areas, was dependent on cash.

According to Sridhar V, partner, Grant Thornton India, the growth of passenger vehicles (PV) as a segment was clearly affected for the initial couple of months post demonetization, but the note ban had a minimal impact over the rest of the last one year.

The industry has consistently sold more than it did in the months of November and December 2016, with sales peaking at 300 thousand vehicles in September 2017, he added.

Three months after the government demonetised high-value currency notes, Rajiv Bajaj, MD of one of the leading two- and three-wheeler manufacturers Bajaj Motors, had said during a press meeting that the move had hurt the industry.

Around 2,200 people employed with the 81 component suppliers with which his company sources material were said to have lost their job due to the sudden loss in demand.

Bajaj had also said that a similar situation would be prevailing with other vehicle manufacturing companies.

However, that was long ago. Even segments such as commercial vehicles (CV) and two-wheelers have recovered since then.

CV sales, which had dropped in December last year, have shown signs of recovery and do not appear to have had a significant impact on account of this alone in the rest of the last 12 months.

Two-wheelers, which had a rough ride for a few months, have gained momentum and peaked at two million-levels in September this year.

"All-in-all, demonetization did have some negative impact but has not been seen to be a deep-rooted cause impacting the growth of the auto sector," said Sridhar.

Abdul Majeed, partner, PwC, concurs. "Normalcy is slowly returning. It will take some more time. The key to sustaining demand is overall growth in the economy," he said. According to him, the demonetization impacted the industry across all the segments, though two-wheelers and small cars were affected more.

India's auto industry is one of the largest in the world, accounting for 7.1% of the country's gross domestic product. However, abrupt policy changes continue to affect its long-term, sustainable growth.

Industry insiders claim that even though the industry limped back to normalcy within a few months of the note ban, another disruption hit in the form of goods and services tax in July, leading to uncertainty among the prospective customers. This impacted the sales during the festive season of September-October, the time when sales usually peak.

The online sales businesses of automotive sector though saw a gain, albeit on a small base.

Sandeep Aggarwal, founder and CEO, Droom, said, "We did see a few days or weeks of inconvenience, chaos and confusion. This was expected keeping in mind the scale and timing of the announcement. However, post the initial hiccups, we reaped benefits as we had invested heavily in the last two years to create India's most advanced end-to-end online transaction platform for automobiles.

Meanwhile, sources say that most of the workers who lost their jobs at Bajaj's component part businesses are back to the grind.