Not only the two-wheelers but the auto industry as a whole will have to be able to cope with the proposed recession

- The automotive industry has been a major source of employment

The Corona epidemic has hit the country's automotive industry hard along with various sectors. After the first wave of Corona, the second wave has also seen a huge drop in retail sales of vehicles. According to the latest figures, vehicle registrations in May have declined by 7.8 per cent compared to April this year, while retail sales in May 2021 have declined by 20.4 per cent as compared to May 2016. As there was a complete lockdown in May 2020, the May 2017 sales figures have been taken into account for comparison.

Sales of two-wheelers, three-wheelers, land vehicles, tractors and commercial vehicles declined by 6 per cent, 6 per cent, 7 per cent, 6 per cent and 6 per cent on a monthly basis, respectively. The second wave of Corona has had a serious impact on rural markets as well as urban markets. However, overall demand is expected to remain sluggish as rural markets are still struggling against Corona. Thus, V shape recovery is not likely to be seen in the auto sector.

In view of the impact on rural markets, the government has taken steps to increase sales of vehicles, especially two-wheelers. The government has announced some incentives with the aim of reducing the price of electric two-wheelers. Given the widespread impact of Corona at the village level, it remains to be seen how successful these incentives will be. If the incentives are successful, the success will be limited to two-wheelers and even electric two-wheelers. By providing these incentives, the government has tried to increase the demand for electric vehicles as well as sales in rural markets. However, the market size of two wheelers as well as cars, commercial vehicles, buses etc. in India is very large.

The downturn in the auto sector has spilled over into many other sectors. Every affiliate sector somehow sees the impact of the auto sector downturn. The auto industry in the country has been facing a severe recession for the last four years. Despite the good results of the 2014 Lok Sabha elections and favorable announcements in the budget, the expected increase in vehicle sales is not seen.

In addition to Corona, the current recession is the longest in a decade due to complex regulations such as the conversion to emission standards from the previous BS4 to BS3, heavy competition in all segments and a sluggish mindset of users. Even modest changes in the rules and regulations for vehicles have a far-reaching effect on sales. The downturn in the automotive industry has naturally had a direct impact on the ancillary industry. This unprecedented downturn in the auto sector is having a profound effect on the tire industry, steel industry, credit sector, general insurance companies, ancillary industry.

About 4,000 people are directly employed in the 3,000 auto showrooms operating in the country. While another 3 lakh people have indirect employment related to auto. If the government does not take timely action on this issue, the possibility of major unemployment in the automotive industry in the post-Coro era is not ruled out.

The cuts in production by auto companies have also put tire manufacturers in a quandary. There are fears that tire production will have to be reduced if demand in the auto sector does not increase and the situation does not improve in the near future. The growth rate of non-banking finance companies (NBFCs) issuing auto loans has been slow.

Despite declining sales, rising raw material prices, rising costs due to new safety regulations and higher rates of duty on imported parts make it necessary for manufacturers to raise the price of vehicles. This is likely to put further pressure on retail sales. The motor insurance segment contributes the most to the revenue of general insurance companies, but revenue growth through this segment has been slow in recent times. Improving the motor insurance business depends on how the mindset of consumers for new vehicles remains.

The decline in sales of all types of vehicles, be it two-wheelers, three-wheelers or landing vehicles, has affected the recovery of insurance premiums as premiums account for a higher share of premiums for new vehicles. In such a scenario, it is time for the government to intervene urgently to prevent the country's auto industry from being plunged into a protracted recession. If not only the two-wheelers but also the overall automobile sector is taken seriously, the auto industry will get back on track otherwise many people, including the government, will have to suffer the consequences of the recession.