Was this a case of the storm before the calm?
On Monday, private forecaster Skymet put out a grim projection of the monsoons this year stating that they would be ‘below normal’ across the country. Naturally, alarm bells began ringing across key sectors till the Indian Meteorological Department (IMD) reiterated a day later that the year would see normal rains, which meant that there was really no cause for panic.
So which of these forecasts will end up being closer to reality? From the auto industry’s point of view, there will be a fair degree of concern in the coming months with all eyes riveted on the monsoons. More specifically, tractor and two-wheeler makers will be a lot more worried since rural India makes up a key market base and still has not recovered completely after the COVID onslaught of 2020 and ’21.
Entry-level motorcycles have had a rough run over the last couple of years and it is only in recent months that there has been a mild turnaround of sorts. The issue of joblessness and low incomes still persists in small towns and villages but things are not as bad as they were during the pandemic, when both lives and livelihoods were tragically lost across the length and breadth of India.
In the case of tractors, FY21 was a record year despite the COVID headwinds since the agriculture sector got a lot of support by way of intervention from the Centre. With social gatherings like weddings put on the back-burner, the levels of disposable incomes were higher and tractor sales soared.
El Nino Fears
The following fiscals saw more sedate growth in contrast but this time around, the spectre of El Nino has been looming large and that is likely to create some anxiety among stakeholders in the tractor arena. These are early days yet but with global warming now a reality to reckon with, manufacturers will have reasons to be worried.
Compact car sales have also been in the slow lane following the pressures in rural India coupled with the fact that SUVs have been the flavour of the market for some time now. Key players like Maruti Suzuki will be hoping that inadequate rains do not further derail the rural India story since these regions are critical for its hatchback numbers.
Car sales have been especially buoyant last fiscal while two-wheelers are still making up lost ground slowly. Premium buyers in big cities have not been deterred by price tags but in the case of entry-level motorcycles, this is a different ballgame because every small hike can dampen buying sentiment given the reality of modest incomes in rural India.
The truth is that over the last few years, there have been constant levies imposed for meeting safety and emission requirements. These have, in turn, led to a cost burden on manufacturers and, subsequently, end-users who have ended up bearing a part of this increase. This puts in context why two-wheeler sales have plunged in recent years and things have only become more challenging with the pandemic and its aftermath.
Supply Chain Woes
This fiscal will clearly not be as brisk as the year that just went by with some manufacturers going on record to say that the chip crisis continues to pose challenges in the global supply chain. The good news in recent times is the slash in CNG (compressed natural gas) prices which augurs well for Maruti, Hyundai and Tata Motors in particular.
It is also a given that prices of diesel and petrol will not see a hike between now and the Lok Sabha elections because of the reality of politics and the need to keep the voting public in good humour. To that extent, from the energy side, the consumer is going to be insulated from price increases in auto fuels but the weather is going to be a different challenge altogether.
For now, everyone will be hoping that the IMD forecast is right and it will be business as usual in the coming months as the country gets set for the Southwest monsoons in June-July. On the contrary, if the overall rains are in sync with Skymet’s predictions, the auto industry has its work cut out. These are difficult times with the geopolitical tensions globally only adding more fuel to the fire.
NB: Photo courtesy: TAFE.
Also Read: