New Delhi / Mumbai: Revenue growth of the auto ancillary industry is likely to halve this financial year due to slowing domestic vehicle sales and a higher base year ago, the apex industry body said on Tuesday.
The auto parts industry is expected to grow 12-15% in 2011-12 on moderating business sentiment, a far cry from the 33% growth registered previous year, when revenue rose to $39.9 billion, riding on a boom in auto sales.
“Domestic economy has slowed down. Secondly, we are working with a higher base so expect lower growth,” Srivatsa Ram, president of Automotive Components Manufacturers Association (ACMA) said. Stubbornly high inflation in India and a series of rate hikes to tame it have made credit costlier impacting car sales.
Car sales in the country, the world’s second-fastest growing major auto market after China, fell 16% in July, their first drop in two-and-half years, after rising a breakneck 30% in 2010. India’s economy grew 7.7% in the three months through June, it’s weakest in six quarters, with further sluggishness looming as a spate of interest rate increases, high inflation and weak global conditions take a toll.
The Reserve Bank of India (RBI) has raised interest rates 11 times since March 2010. A section of analysts expect the RBI to increase rates by a further 25 basis points in its policy review on 16 September.
The Society of Indian Automobile Manufacturers (SIAM) has cut its growth estimate for the car market for fiscal year 2012 to 10-12% from the earlier 16-18%, as higher interest rates and rising vehicle costs keep demand subdued.
The auto ancillary industry which added $2 billion to $2.25 billion in capacity in fiscal year 2011, expects to add a similar quantum of capacity this fiscal year, as commitments had already been made last year due to a supply crunch with the original equipment manufacturers. However, some companies have started postponing capex plans on account of the economic downturn.
“When you saw the downturn taking place a lot of people have actually postponed their investments,” said ACMA vice-president Arvind Kapur, adding some firms had started to defer investments over the past five-six months. Kapur said some companies were diverting investments meant for four-wheelers to two-wheelers, a category still witnessing strong growth, while others are deploying investments earmarked for the local market in exports.