Indian auto industry demands more cut in rates to boost sales

Wednesday 20 March 2013, 11:53 AM by

The Indian auto sector has given a lukewarm response to the central bank’s move of reducing the rate of short term lending. The auto industry, which is currently going through not-so-good times, said that the sector needs a reduction of a minimum of 100 basis points. Confirming this statement, the Deputy Director General of Society of Indian Automobile Manufacturers (SIAM), Sugato Sen was quoted as saying, “The 25 basis point cut is nothing, we need at least 100 basis points reduction.”

He further added that Reserve Bank’s decision to reduce the repo rate or short term lending rate twice by 0.25 per cent each in a couple of months seems a positive move; however it is not expected to improve the muted condition of Indian auto market immediately. Sen said, “It is a too slow a pace... We are reaching a desperate step, we need policy support.”

Even after the apex banking authority has reduced the repo rate to boost the growth and revive investment in the Indian auto industry, auto analysts are of a view that it will further create a note of caution on account of current account deficit and food inflation. As per the figures of SIAM, the total sales of vehicles across all categories reported a fall of 5.4 per cent, with figures standing at 14,51,278 units in February 2013 over 15,34,910 units delivered in the year ago period.

On the rate cut proposal of RBI, the Vice President of General Motors India, P Balendran was quoted as saying, “This is a marginal decline. We were expecting at least 50 basis points cut as inflation has moderated...we were expecting CRR cut as well.” He then added that the cut in rates is unlikely to make any such significant positive impact on sales of automobiles.

The Deputy Managing Director and Chief Operating Officer (Marketing and Commercial) of Toyota Kirloskar Motor, Sandeep Singh said that the Indian auto industry has to wait and watch that whether this fall in rate would either emerge as a positive dose or not, in a few couple of months. “His is obviously a good move for the industry. We were expecting this,” he added later.

On the same lines, the Senior Vice President (Sales and Marketing) of Honda Cars India, Jnaneswar Sen said if banks pass the advantage of rate cut to auto loans consumers, the Indian auto industry is likely to witness a slight boost in demand. According to figures released by SIAM, the demand for passenger cars in India marked a 12-year low in February 2013 with a fall of 25.7 per cent to 1,58,513 units. The reason cited for this fall is high fuel prices, low consumer sentiments and interest rates, which all together took a heavy toll.

Keeping in mind that the ongoing fiscal will end on March 31, 2013, SIAM said that it is quite certain that the sales in financial year 2012-2013 would be recorded with a fall. Reportedly, if sales in this fiscal marked a fall, it will be the first dip since fiscal 2003.