Auto sales plunge most in 16 years after demonetisation

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New Delhi/Mumbai : India’s automobile sales fell the most in 16 years last month after Prime Minister Narendra Modi’s unprecedented clampdown on cash prompted consumers to delay their purchases of cars, motorcycles and trucks.

Automobile sales fell 19% to 1.2 million units in December, the biggest drop since the same month in 2000, according to data released by the Society of Indian Automobile Manufacturers (SIAM) in New Delhi. Passenger vehicles sales dropped 1.4% while scooters and motorcycles — a key indicator of rural demand — fell 22%, the biggest monthly contraction on record.

“Demonetisation has had its impact on the industry although we feel it is a temporary phase,” Vishnu Mathur, director general of SIAM, told reporters in New Delhi. India’s budget, scheduled for 1 February, should include measures to increase disposable income of consumers to improve sentiments, he said.

The drop in auto sales is yet another indication that Modi’s move to suck out 86% of the currency in circulation is slowing Asia’s third-largest economy. The industry will miss its 12% sales-growth target if Modi’s budget doesn’t include sops for the industry, Mathur said. Gross domestic product is expected to expand 6.8% this fiscal year, according to the median estimate in a Bloomberg survey of 18 economists. That’s slower than the 7.7% expansion predicted before Modi’s 8 November move.

Sluggish consumer demand will add pressure on Modi-led administration to implement measures in the federal budget in a bid to kick-start growth. Even without accounting for demonetisation, the statistics ministry forecasts gross domestic product growth to slow to 7.1% in the year through March, it said in a statement on Friday.

The budget includes tax proposals for various sectors. The measure to ban high value currency notes could boost revenue collections and help government cut taxes, power minister Piyush Goyal said in an interview last week.

The Nikkei Purchasing Managers’ Index signalled December contractions in both manufacturing and the dominant services sector, which makes up about 60% of the economy. A private gauge of consumer sentiment has dipped since mid-December and anecdotal evidence suggests job losses in India’s vast informal sector that employs more than 90% of Indian workers.