Finance Minister’s Nirmala Sitharaman’s logic on explaining the slump in the automobile sector has clearly brought much humour on social media platforms. She stirred a hornet’s nest when she attributed the “mindset of millennials,” who prefer to use Ola and Uber, as one of the critical reasons behind the Indian auto sector’s spectacular fall. According to Sitharaman, millennials today would rather opt for Ola, Uber and other ride-hailing services instead of paying monthly installments for a car.
Sitharaman’s comments coincidentally come a day after the automobile sector reported its steepest monthly decline in sales since 1997-98. Vehicle sales across categories including passenger vehicles, two-wheelers and commercial vehicles fell 23.5 % year-on-year, according to the industry body Society of Indian Automobile Manufacturers (SIAM).
What resulted from Sitharaman’s statement is it set the stage for a debate. While there are some takers to her side of logic, other industry analysts have merely panned it. Obviously, for the sake of a sound argument, what matters is to figure out that if there exists a direct correlation between buying a car and hiring a taxi. In plain terms, what this implies is whether Sitharaman’s comment has substance or was it off the mark?
For one, along with passenger cars, the sales of bus and trucks also saw a precipitous 39% fall last month, thereby compounding the auto industry’s travails. Analysts have said that in this case, it would be far-fetched to lump the blame on millennials, since they would rarely own a bus or a truck. What this broadly implies is a general fall in consumer demand within the Indian economy, something that extends far beyond the millennials and their purchasing behavior.
Second, cab aggregators like Ola and Uber are largely restricted to metro cities and to some extent tier-2 cities. Sitharaman’s argument does not explain why vehicle sales have slumped in rural India. For instance, two-wheeler sales, a key indicator of demand from rural India, fell 22% year-on-year in August, according to SIAM.
Third, according to some analysts, the crisis of non-banking finances companies or shadow banks have also hit car sales. Although the government in recent times has taken measures to ease up the liquidity crunch in the sector by allowing credit flow, but the supply of easy finance has taken a toll where over three-fifth of vehicles sold are financed through loans.
Also, for the record, the concept of ride-hailing services such as Ola and Uber have come to India during the last 6-7 years. Thus, it might be premature to blame them for the disruption, given that the sector has seen some rosy years during the time of their existence. On the larger front, the auto slowdown is more a function of the country’s broader economic woes than of any one specific factor. Consumption, the main pillar of the economy is down in the dumps with GDP growth falling to a six-year low. This is playing out in case of consumers who are holding back purchases because of uncertainty.
Hence, it would be wrong to construe the mindset of millennials as the factor behind the slowdown. The reasons for the auto-industry’s plunging fortunes are varied and the millennials aversion to owning cars is only miniscule fraction of this complex issue.
India Outbound
September 25, 2019
source https://indiaoutbound.org/the-millennial-angle-in-indias-auto-sector-slump/
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