India’s auto industry has borne the brunt of a year-long liquidity squeeze that has triggered large-scale job losses. The auto sector usually enjoys a spending boost ahead of the country’s annual Navratri and Diwali festivities, but in August production was cut by almost 30 per cent from a year earlier, according to the Society of Indian Automobile Manufacturers (SIAM). “The automotive industry employees 37 million people directly and indirectly,” SIAM President Rajan Wadhera said. SIAM estimates that the auto sector has already lost 300,000 jobs. “Another million are at risk,” said Wadhera.
Industry leaders admit to having been caught off guard by the severity of the downturn. Key to the collapse is the role of India’s shadow banks that provide almost half of all loans for vehicle purchases. The bailout last year of infrastructure lender IL&FS and subsequent liquidity crunch caused much of that funding to dry up. SIAM’s Wadhera reiterated the demand for lowering of GST (goods and services tax) on automobiles from 28 per cent to 18 per cent. The coming festive season will be a crucial test, and many analysts are optimistic sales will bounce back. But Wadhera expects any boost to prove fleeting.