Mumbai: India’s auto component makers will probably see the benefits of the government’s stimulus package and the Reserve Bank of India’s (RBI) rate cuts only three or four months hence when their customers clear surplus inventory, officials said.
On 2 January, India unveiled its second fiscal stimulus package in a month to boost a slowing economy. The RBI also slashed key lending and borrowing rates and also eased banks’ reserve requirements.
“It will take another six months before we can see a turnaround. There is a lot of inventory piled up at the OEM (original equipment manufacturer) end,” said Santosh Singhi, chief financial officer of Amtek Auto Ltd.
06 January | Mint e-paper
Top auto makers such as Tata Motors and Mahindra & Mahindra have cut production and temporarily shut some plants in December to offset a steep fall in demand, hurting demand for vendors.
Overall car sales in India dropped by nearly a fifth in November, the worst fall in eight years, data from the Society of Indian Automobile Manufacturers showed.
“Even if there is a positive impact it would come down to vendors only after 3-4 months, OEMs have to clear inventory first,” Amtek’s Singhi said.
Singhi, who expects Amtek’s sales to drop by a third this year, said his company’s local sales will suffer less than its exports as the US and Europe are battling the worst auto slowdown in decades.
The government’s stimulus measures would force banks to lend more, though benefits would be apparent only after April, said an official at Exide industries, India’s top auto and industrial battery maker.
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“It may take time, but still better late than never. I think before the annual budget, another round of rate cuts can be expected,” said Paban K Kataky, director at Exide.
Others such as tractors and auto parts maker Escorts Ltd are not so optimistic as lending by public sector banks was yet to pick up despite the government’s continued efforts.
“As far as tractors go, we are very concerned, about the slow lending from public sector banks to farmers,” said Joint Managing Director Nikhil Nanda, adding that 98% of tractors sold in the country are through retail bank loans.
Tyremakers, battling slowing demand amid rising rubber costs for the better part of 2008, also remained sceptical about the benefits of the recent package.
“Unless the overall economic activity and manufacturing sector picks up, these measures will not have a major impact,” said A.S. Mehta director marketing at JK Tyre & Industries.
“The basic issue is new buying must take place, especially in the commercial vehicles space and in turn demand will come for tyres,” Mehta said, adding this was likely to happen in the April-June quarter.