Why is India’s car industry in breakdown mode?

India’s second-biggest manufacturer of commercial vehicles, Ashok Leyland, is suspending production at several units from five to 18 days in September, triggering fears that the slump in the automotive sector shows no sign of letting up. 

Ram Mardi is worried he may lose his job. He works for a company that makes spare parts for cars and heavy vehicles in Jamshedpur, an industrial city in eastern India. But he has worked only 14 days in August.

“We had a comfortable life until recently. Now, it’s hard to arrange food or pay for the children’s education,” Mr Mardi says.

The factory he works at temporarily suspended production for half of the month to reduce inventory in the face of shrinking demand.

Industry heavyweights such as Maruti, Tata Motors and Mahindra & Mahindra have all announced production cuts over the past several months.

India’s economy is facing a slowdown. It grew at 5% in the quarter ending June 2019 – its lowest in five years. This – along with a drop in private investment and a banking crisis that has made it hard to access credit – has weakened consumer demand.

The Indian government is also pushing for a transition to electric vehicles over the next decade, which some experts believe, has contributed to falling vehicle sales.

As the automotive industry declined for the 10th month in a row in August, car sales dropped by 41% – the steepest fall in two decades.

The industry is one of India’s biggest, considering it employs some 35 million people, directly or indirectly, and contributes more than 7% to the country’s GDP.

By some estimates, more than 100,000 workers, many of them contractual, have lost their jobs so far. Now fears are rising that if demand continues to fall, forcing lower production, more jobs could disappear.

republic desk

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