India's $57 billion automotive component industry, which accounts for 2.3 per cent of country's GDP and employs over 5 million people, has witnessed its worst ever half yearly performance with overall revenues registering a de-growth of 10.1 per cent at Rs 1.79 lakh crore in 2019-20. This has resulted in around 100,000 people losing their jobs and an estimated investment loss of about $2 billion that would have happened had the industry continued to grow.
The poor performance is largely on the back of the steep decline in vehicle industry where production was down by over 13 per cent in the April-September period this financial year. The component industry's business is basically made up of three revenue streams - vehicle manufacturers, exports and aftermarket. Sales to OEMs (original equipment manufacturers), which comprises the biggest revenue pie, declined by over 15 per cent in the first half this fiscal at Rs 150,743 crore. Exports grew by 2.7 per cent at Rs 51,397 crore while aftermarket segment also grew by 4 per cent at Rs 35,096 crore, but it wasn't enough to offset the steep decline in sales to vehicle makers.
"This is a prolonged slowdown that has extended well beyond a year now. Nobody expected this. We are still seeing a stable export and aftermarket performance but sales to OEMs has declined in line with the performance of the vehicle industry at large," says Deepak Jain, president, Automotive Component Manufacturers Association (ACMA). "We have collated some data from our members on the number of people who have been retrenched and it comes to about 100,000 as of July. Most of these are, however, temporary jobs, which reflects the present state of the market. Once the industry revives, we tend to hire far more than what we fire in a downturn."
The last time the industry had declined was back in 2013-14 when revenues had fallen by 2 per cent. This time, the decline is far higher. ACMA said there is no clarity on when the industry would bounce back or whether the worst was over, but expressed hope that things would be better in the last quarter (January-March) when all vehicle makers are expected to completely transition to BS VI norms. It however added that there are apprehensions of a slowdown in the first quarter of financial year 2020-21 again as expensive BS VI vehicles may dampen demand.
"Most of the BS VI vehicles are getting launched in the second half of this fiscal so the reasonable outlook is that in the last quarter there may be some demand generation as manufacturers would look to stock up and build inventory for these vehicles at their dealerships," Jain said. "There are, however, apprehensions of a slowdown in demand in the first quarter of next fiscal as BS VI vehicles are more expensive than BS IV. So growth on a sustainable basis may happen only from the second quarter of fiscal 2021."
The overall automobile industry with a turnover of $120 billion accounts for 49 per cent of the manufacturing GDP and 15 per cent of GST. If the slowdown worsens, then this government's dream of making India a $5 trillion economy by 2024-25 may turn out to be a pipe dream. ACMA said this year's slowdown has pushed the industry back by at least a year and led to an investment loss of about $2 billion.
"In the last 2 years we have not grown in the way we should have. If we had, we would be a $63 billion industry today instead of $57 billion. For $6 billion additional revenue that we would have generated, an investment of $2 billion would have been made. That is what we have lost," Jain said. "There can be no doubt that this industry has to be accorded special preference so that we can grow if India has to achieve the $5 trillion economy dream. It cannot happen if we do not grow. I do not think we are given due credit for what we do. The perception needs to change."