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Photo: Mint
Photo: Mint

India car sales grow fastest since 2010-11

Car sales rose 7.87% from the previous year to 2.025 million units in the year ended 31 March, highest since the 29% increase y-o-y in 2010-11

New Delhi: Sales of passenger cars in India grew at the fastest pace in five years in the 12 months to 31 March, but the automobile industry lobby group on Friday slashed its forecast for the current fiscal year, saying measures to fight vehicular pollution would hurt demand.

Car sales rose 7.87% from the previous year to 2.025 million units in the year ended 31 March, the Society of Indian Automobile Manufacturers (SIAM) said. That’s the fastest pace of growth since 2010-11, at the height of an economic boom, when sales had expanded 29% year-on-year.

Yet, SIAM cut its forecast for car sales growth in 2016-17 to 6-8% from an earlier 11%, citing higher taxes and a ban on the sale of large diesel cars in the National Capital Region (NCR) centred around New Delhi, which the World Health Organization in 2014 rated as the world’s most polluted city.

“Maybe the industry is not confident of growing at 11%," said Sugato Sen, deputy director general of SIAM. “There is not just one reason for that. Many things have changed in the last one year. I don’t remember anything that this government has done in the last one year to support this industry. In fact, they have done everything to curb this industry’s growth."

On 31 March, the Supreme Court extended a ban on sales of high-end diesel vehicles in Delhi-NCR, indicating that it could be lifted with the imposition of an environmental cess on their purchase.

On 16 December 2015, the court barred the registration of diesel vehicles with engines bigger than 2000cc in Delhi-NCR till 31 March. It also doubled the entry tax on trucks coming into Delhi and took 10-year-old diesel commercial vehicles off the capital’s roads.

In the preceding fiscal year, car sales had grown 5.09% to 1.87 million units after shrinking for two consecutive fiscal years in 2012-13 and 2013-14 in the face of an economic downturn.

In the fiscal year just gone by, sales of all passenger vehicles including cars, vans and utility vehicles grew 7.24% to a record 2.79 million units, according to SIAM data. Sales of two-wheelers rose 3.01% to 16.46 million units.

And, in a sign of an improved economic environment, sales of all other vehicle categories such as commercial vehicles and three-wheelers also posted growth during the year, taking the combined sales of all categories of vehicles to a record 20.46 million units.

The National Democratic Alliance (NDA) government has said that it wants to turn the automotive sector into the “mother of manufacturing activities" by making it the engine of Prime Minister Narendra Modi’s ‘Make in India’ initiative.

According to the government’s Auto Mission Plan 2016-26, the passenger vehicles market will triple to 9.4 million units by 2026 from 3.2 million at present if the economy grows at an average of 5.8% a year. If the economy grows at an average pace of 7.5% annually, the mission plan forecasts the passenger vehicle market will rise to 13.4 million units, making it the world’s second largest, behind only China.

Some policy measures taken by the NDA government have hurt the automobile industry. In his 29 February budget speech, finance minister Arun Jaitley announced an infrastructure cess of 1% on small petrol, liquefied petroleum gas and compressed natural gas cars (under 4m in size and with engines up to 1200cc), 2.5% on diesel cars (not exceeding 4m and with engine capacity not exceeding 1500cc) and 4% on higher engine capacity vehicles and sport utility vehicles.

All of these are expected to increase the cost of car ownership by 1-2% during the year, SIAM said.

“If you don’t support the industry, then at least do not hurt us," the lobby group’s Sen said, adding that many of its members are contemplating cutting investments in the country.

Mint on 6 April reported that Japanese automaker Toyota Motor Corp., the world’s largest carmaker, will halt new investments in its India operations until there is clarity on the fate of diesel-powered vehicles.

The Indian auto industry employs 32 million people directly and indirectly and accounts for 7.5% of the gross domestic product.

Kumar Kandaswami, senior director of Deloitte in India, said that extension of the ban on diesel cars will have implications on investment decisions by automakers. “To the extent there is lack of clarity, they would hold back fresh investment," said Kandaswami.

India’s automakers met on Friday in Mumbai to devise a strategy to argue their case in the Supreme Court. Industry arguments are expected to put forward data to prove that diesel vehicles do not pollute as much as they are perceived to and they are more expensive to manufacture than petrol vehicles.

Besides, diesel vehicles are already taxed heavily—excise duty on them has been increased from 22% to 34% in the past five years.

But not everyone agrees with SIAM’s perception of subdued growth in the current fiscal year. A consultant said that the industry’s prospects are bright because of falling interest rates, expectations of a good monsoon after two back-to-back droughts, and increased investment in the rural economy and infrastructure.

“The next level of reforms such as goods and services tax and labour reforms, if initiated quickly, can lead to much faster growth in the economy compared with the current pace. This will help the automotive industry grow to its potential," said Abdul Majeed, partner and auto practice leader at PricewaterhouseCoopers.

India’s Economic Survey, presented in February, has pegged growth at 7-7.75% in 2016-17. On 31 March, Manila-based Asian Development Bank said India’s economic growth will slow to 7.4% in 2016-17, from 7.6% in 2015-16, with tepid external demand offsetting a pickup in domestic demand.

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