Get All Access for $5/mo

Covid-19: Indian Automobile Sector Crunched Into Reverse Gear The present global pandemic with lockdown, job losses and declining demand casts a spell of gloom for the industry in the near future

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.


The Indian automobile industry is the fourth largest in the world with an annual turnover of $100 billion and employs 32 million people. The two-wheeler industry in India is the largest in the world. India is also the largest tractor manufacturer and the eight largest commercial vehicles manufacturer in the world.

The automobile sector currently contributes about 50 per cent of the manufacturing gross domestic product (GDP) in India, 26 per cent of the industry GDP and 7.1 per cent of overall GDP, up from 2.7 per cent in 1992-93. The sector contributes approximately 13 per cent of excise revenue to the government.

The total investment in this sector is around $40 billion in the last decade. The decade of 2001-2010 saw a compounded annual sales growth of 15.67 per cent, which included 10 per cent exports. The yearly growth of exports was 23 per cent from 2000 to 2015 due to constant government support.

The automobile industry includes two-wheeler, four-wheeler, passenger vehicle and commercial vehicles. In 2018-19, 4.06 million cars were manufactured and at present around 32 million cars run on Indian streets. The two-wheeler segment dominates the industry with a share of 80 per cent.

In 2019-20, however, the sector faced troubles in maintaining sales and profitability numbers on quarterly and even yearly basis. In August 2019, there was a 35.9 per cent drop in domestic sales for market leader Maruti Suzuki with 94,728 units being sold due to subdued market confidence, slow economic growth and crisis in the non-banking financial companies (NBFCs).

The March 2020 numbers show the effect of lockdown due to the COVID-19 pandemic. The last month of any financial year is usually the peak period for inventory clearance for the industry. Maruti Suzuki India saw its total domestic passenger vehicle sales fall 47.4 per cent to 76,240 units in March 2020 compared with 145,000 units in March 2019. The export sales were down almost 55 per cent to 4,712 units from 10,463 a year ago. With overall sales down by 16 per cent, the company ended FY20 with a total sales of 1.563 million units, down from 1.862 million in the previous fiscal. Similarly there was a 40 per cent decline in domestic sales of Hyundai Motor India to 26,300 units in March 2020. Similar trend was seen in Mahindra and Mahindra's domestic passenger vehicle sales, which drastically plunged 88 per cent to 3,384 units in March 2020 from 27,637 units in March 2019.

The switch from Bharat Stage 4 (BS4) to Bharat Stage 6 (BS6) emission norms has also added to the woes of the sector as BS6 was to be implemented from April 1, 2020. This brought in long-term problems to the automobile industry from both manufacturing end to sales point such as research and development, technological upgradation and closing down of plants to stop piling up of old inventory. As new BS6 vehicles were few in the market and the switch to BS6 saw the overall demand sales of BS4 vehicles drop, this led to an increase in inventory of old (BS4) vehicles both in two-wheeler and four-wheeler segments.

Hence many automobile plants of leading players were closed for few days to halt production, which led to loss of jobs of the contractual workforce. Macroeconomic issues that added to this crisis include the decline in demand/consumption both from the rural and urban markets, and a liquidity crunch in the financial markets. NBFCs have had an enormous exposure to vehicle financing in the country, covering all segments.

In July 2019, NBFCs financed almost 70 per cent of new two-wheelers and 60 per cent of new commercial vehicles sold in the country comprising of Infrastructure Leasing & Financial Services (IL&FS) and Dewan Housing Finance Ltd (DHFL) which were leading NBFCs. When IL&FS and DHFL went into financial distress, they transmitted this contagion from the financial services sector to automobile sector dragging it down.

The Society of Indian Automobile Manufacturers (SIAM) in July 2019 wrote to the government of India to take appropriate measures to promote flow of credit in the system to facilitate new vehicle purchases. This was emphasized to improve liquidity specifically in the NBFC sector lending that saw both monthly and quarterly basis downfall in sales and had even lead to closure of a few dealerships.

The reverse gear of the India auto industry came immediately after the government declared a nationwide lockdown on March 24, 2020 to contain the spread of COVID-19. SIAM declared that the plant closure of auto original equipment manufacturers and component manufacturers will lead to a loss of INR 2,300 crore per day and a cumulatively three-week shut down of the automotive industry will translate into a total revenue loss of INR 48,300 crore.

Supporting the lockdown, all automakers immediately temporarily closed down which included Maruti Suzuki, Honda, Hyundai, Tata Motors, Mahindra and Mahindra, Toyota Kirloskar Motors, Kia Motors and others. Even the two-wheeler manufacturers Hero MotoCorp, Honda Motorcycle, Scooter India, TVS Motor Company, Bajaj Auto, Suzuki Motorcycle and Yamaha have shut down manufacturing.

A minor support came on March 27, 2020, when the Federation of Automobile Dealers Associations appealed to the Supreme Court to allow the sale of BS4 vehicle inventory which has piled up amid the COVID-19 crisis. The Supreme Court gave an extension of ten days, post the ongoing 21-day lockdown to sell the old inventory of BS4 vehicles with a caveat that only 10 per cent of the unsold BS4 inventory could be sold in India excluding Delhi-NCR region where none can be sold. The unsold stock includes around 700,000 two-wheelers, 15,000 passenger cars and 12,000 commercial vehicles.

Let us hope that the Indian automobile industry, which had been accelerating for the last two decades and has now gone into reverse gear, has seen the worst. But the present global pandemic with the lockdown, job losses and declining demand casts a spell of gloom for the industry in the near future.

Dr. Ruchi Mehrotra Joshi

PGPIM (IMI, Delhi), Ph.D (Finance) School of Law, University of Petroleum & Energy Studies, Dehradun


ChatGPT is Becoming More Human-Like. Here's How The Tool is Getting Smarter at Replicating Your Voice, Brand and Personality.

AI can be instrumental in building your brand and boosting awareness, but the right approach is critical. A custom GPT delivers tailored collateral based on your ethos, personality and unique positioning factors.

Growth Strategies

AMD Confident About Increasing Market Share In India

The semiconductor company is positive about the business environment in India on the back of growing investments in data centers and AI, Cloud repatriation, as well as technology refresh taking place across companies on both server side and client devices

Business News

Is the AI Industry Consolidating? Hugging Face CEO Says More AI Entrepreneurs Are Looking to Be Acquired

Clément Delangue, the CEO of Hugging Face, a $4.5 billion startup, says he gets at least 10 acquisition requests a week and it's "increased quite a lot."

News and Trends

Apple Dethrones Nvidia to Regain Its Position as World's Second Most Valuable Company

Apple has reclaimed its spot as the second most valuable company in the world, overtaking Nvidia, with a market cap of $3.26 trillion.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.


15 Traits That Set Influential People Apart

Influential leaders spark change for the better.