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Slowdown Blues: Auto component makers lay off workforce amid weak sales, up to 10 lakh jobs in danger

The automobile component industry grew by a respectable 14.5 percent to $57 billion in fiscal 2019, but a steep slowdown in the second half of the fiscal has resulted in retrenchment across companies

Sumant Banerji   New Delhi     Last Updated: July 24, 2019  | 17:16 IST
Slowdown Blues: Auto component makers lay off workforce amid weak sales, up to 10 lakh jobs in danger
The auto component industry employs 50 lakh people, 15-20 per cent of whom might face retrenchment.

A protracted slowdown in the domestic automobile industry has begun to take a toll on the ancillary units that cumulatively employ around 50 lakh people in the country. The automobile component industry grew by a respectable 14.5 percent to $57 billion in fiscal 2019, but a steep slowdown in the second half of the fiscal has resulted in retrenchment across companies. Should the slowdown persist over the next few months, between 7.5-10 lakh jobs could be in danger.

"The first-half of the fiscal 2018-19 witnessed a robust double digit growth. However, the second-half saw a significant slump in vehicle sales. The component industry, in tandem, posted a somewhat subdued performance with growth of 14.5 per cent over the previous fiscal, registering a turnover of Rs 3,95,902 crore ($57 billion)," said Vinnie Mehta, Director General, Automotive Comoponent Manufacturers Association (ACMA). "This industry employs about 5 million people and 70 percent of it is contractual in nature. That is where retrenchments have begun but it is likely to get worse if the slowdown persists. We are looking at a possible 15-20 percent reduction in workforce if things do not improve soon."

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The component industry contributes 2.3 per cent to India's GDP and 25 per cent to its manufacturing GDP, and its prospects mirror the domestic vehicle industry that is its main client. Passenger car sales have declined in 11 of the last 12 months and endured its worst-ever quarter in almost 18 years between April and June this year.

"We are facing an unprecedented slowdown. The vehicle sales in all segments have continued to plummet for the last several months," said Ram Venkataramani, President, ACMA. "Considering the auto component industry grows on the back of the vehicle industry, a current 15 to 20 per cent cut in vehicle production has led to a crisis like situation in the auto component sector. If the trend continues, an estimated ten lakh people could be laid off."

The first casualty of the slowdown is future investment, which has dried up. Already, the industry has made substantial investments to make vehicles compliant for transition from BSIV to BSVI emission norms that are due from next year. But the current demand slowdown on top of the aggression of the government on electric vehicles that will cause a major disruption in the ancillary business, has put a question mark on the return on these investments.

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"There is a lack of a clarity on policy for electrification of vehicles, especially for two and three wheelers, and this has left the industry unsure of its future and has caused it to stop all future investments," said Mehta. "There is a need for a much more deeper dialogue between the government and industry on the roadmap for electrification so that investments for the future can be properly planned. Right now, one ministry in the government says one thing on one day and the other ministry says something else the other day. This makes companies very nervous."

"Any further changes in targets for roll-out of electric vehicles would increase India's import bill and damage the current robust auto components manufacturing ecosystem. This will also result in significant job losses," said Venkatramani. "Therefore, a stable, technology agnostic, e-mobility policy is the need of the hour to ensure a smooth transition and creation of a strong local supply base."

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