India’s auto industry may slide down from a 21 percent growth in FY23 to a low single-digit growth in FY24: FADA President Manish Raj Singhania
With the period of high growth over, India’s auto industry growth is likely to slow down to low single digits in FY24 says Manish Raj Singhania, President of the Federation of Automobile Dealers Associations (FADA). In contrast, overall retail grew by 21 percent in FY23. FADA, a lobbying group that represents more than 15,000 car dealers with 26,500 dealerships across the country, believes that high inflationary pressure, routine price increases and regulatory changes in the background of geopolitical challenges are the causes for this slowdown.
Singhania told Autocar Professional that, despite a strong performance in FY23, many uncertainties remain, including inflationary trends, spiking and firming interest rates, the ongoing Ukraine-Russia conflict, and the impending global recession, among others. Furthermore, supply chain issues have resurfaced, owing primarily to a shortage of processors. This worries original equipment manufacturers (OEMs).
“So all of these things are concerning,” Singhania said. “But, as a nation, India appears to be doing reasonably well,” he noted, before adding that if the current rate of growth continues, along with a good monsoon, the auto industry could see low single-digit growth in FY24.
The FADA remarks come as the World Bank and Asian Development Bank (ADB) cut their economic growth forecasts for India by 30 basis points and 80 basis points, respectively, to 6.3 percent and 6.4 percent, citing risks from global and domestic headwinds.
According to the World Bank, the country’s real GDP is expected to decline from 6.9 percent in FY23 to 6.3 percent in FY24 due to the lag impact of monetary policy tightening, increased growth uncertainty and reduced government spending. This may lead to local consumption constraints. The World Bank also warned that lower-income consumers’ spending will be hit in FY24 due to slower income development. Also, any weather-related shocks, like too much or too little rain or changes in temperature, will put more pressure on the RBI to raise interest rates.
The ADB, on the other hand, said that any worsening of the geopolitical situation is likely to put more downward pressure on global demand and increase uncertainty, which could slow India’s growth rate and drive up inflation. It stays more lenient on domestic prospects, predicting strong growth in FY24 and FY25.
The festive season drives March sales
Based on the data that FADA has, March 2023 saw a 14 percent increase from the previous year. Except for tractors, all categories experienced double-digit increases.
The number of two wheelers, three wheelers, passenger cars, and commercial vehicles increased by 12 percent, 69 percent, 14 percent and 10 percent, respectively.
Tractors, on the other hand, increased by only four percent. The two-wheeler category increased by 12 percent year on year but was down by -9 percent from pre-Covid-19 values. Rural India, which has yet to perform well, remains under inflationary strain.
The three-wheeler segment had record-high retail sales, with sales up 69 percent from March 2020, when the industry switched from BS-4 to BS-6, to March 2019.
The passenger vehicle sector increased by 14 percent year over year. Better supplies combined with higher sales kept the meter ticking at the upper end of the spectrum. This, along with an increase in the price of OBD-2A cars and multiple festivals throughout the month, kept sales robust, though inquiry levels have now begun to decline.
The commercial vehicle segment has also grown rapidly, increasing by 10 percent year over year. During the month, passenger car demand was also strong. “Aside from the Central Government’s spending on infrastructure, price increases for OBD Stage 2A and OEM discounts led to pre-ordering.” the lobby group noted.
All segments except tractors clocked double digit growth in FY23, but headwinds remain
FADA President, Singhania, commented on the FY23 performance, saying, “FY23 was the first full year without any impact of Covid-19 after a two-year gap.” As a result, total retail sales increased by 21 percent over the course of the year. Except for tractors, all categories saw double-digit increases, with two-wheelers, three-wheelers, passenger vehicles, and commercial vehicles increasing by 19 percent, 84 percent, 23 percent and 33 percent, respectively. Tractors, on the other hand, increased by only eight percent.
During the year, total retail sales in the two-wheeler segment dropped to a seven-year low of 15.9 million. EV penetration in this area was at 4.5 percent last year.
The three-wheeler category kept its impressive year-over-year growth rate of 84 percent. This category’s electrification rate reached 52 percent, mainly due to the e-rickshaw segment.
The availability of finance, as well as alternative fuels and government subsidies, has contributed to the growth of this segment. Retail sales of passenger vehicles hit a new high of 3.6 million vehicles, up 23 percent year over year. The prior high was 3.2 million vehicles in fiscal year 2019. As the semiconductor shortage got better this year, the sector saw a lot of new products come out and the availability of products got better.
Demand for higher-end versions aided in maintaining sales. On the other hand, because customers in this group continue to experience high inflation, the entry-level variant is still under pressure.
Tractor sales increased by eight percent year over year. Despite this, this sector achieved an all-time high retail of 8.27 lakh units, surpassing its previous high of 7.82 lakh units in FY21, FADA added.