The automotive market—including, passenger cars, light commercial vehicles (LCVs) and SUVs—has shrunk 43 percent so far into the fiscal year. At this rate, the market will fall somewhere around 150,000 units, half of last year’s volumes, and a fraction of the novel growth expectations envisioned in the last automotive policy that had many a players giddy with excitement. No more. At 8MFY23, total volumes stand at roughly 100,000 units—lowest since FY14 and about the same as FY20— selling about 15,000 units on average monthly compared to 22,000 units last year. While this is a major decline, given the circumstances, it could have been a lot more.

Supply constraints of imported kits and inputs—a consequence of FX reserves drying up causing the government to impose import restrictions—have gone on for months which had assemblers twiddling their thumbs keeping plants closed for many days at end since they did not have required materials to continue non-stop production. This also led to longer delivery times, deliveries being delayed and, in some cases, no delivery commitments made during the period. Not long ago, demand was so strong; assemblers were putting their workforce through double-shifts to keep up with it. Now they are operating well below capacity. There will always be need for cars in the market, but massive inflation, and substantially more expensive cars would also see suppressed demand. Assemblers have raised prices due to rupee depreciation, inflationary costs, higher taxes and rising policy rate. Over the period, car prices went up by 35 percent or more with very few players offering price locks on booking. High cost of borrowing has kept many potential car buyers are bay waiting for the economy to stabilize.

However, volumetric sales and auto borrowing may not be the best gauge of demand in the market as supply tensions persist. Certainly, volumes would be depressed as cars are become more and more expensive amid declining purchasing power. But without the economy getting on any firm recovery path—which involves having shored up its reserves—the import restrictions will persist, and plant closures will continue. This is not to say the automotive industry will not survive—it most likely will—but it could cause damage in the form of layoffs or pay cuts, throughout the value chain and especially amongst smaller parts and component suppliers/manufacturers.