Narendra Modi

Effect of Demonetization for the Indian Auto Industry

Surprise demonetization move by the Government of India will see a slump in sales for the Indian Auto Industry.

On the 8th of November, Prime Minister Narendra Modi, through an address to the nation disclosed that the 500 and 1000 rupee notes would be done away with. This is one of the several steps taken by the Government of India to tackle corruption and black money laundering in the country. During the address, the Prime Minister mentioned that a window of 50 days would be given so that citizens can exchange these old notes in the banks across the country. Although the demonetization is a welcome move largely supported by the common man, this move does have certain shortfalls for the auto industry in the country.

The usual sales trends for many years see the volume of automobiles in India peak during the Diwali period and slow down until the end of the year. Going by the fact that this announcement has come after Diwali, the auto industry might see a slump in sales for the next three to four months as consumers will put on hold their plans to buy a vehicle.

Maruti Suzuki Baleno
Sales of small cheaper cars is unlikely to be affected

Although the disclosure of the Permanent Account Number (PAN) is required during the purchase of vehicles, cash transactions do take place when it comes to the SUV, luxury car and superbike markets. These are the segments that will be majorly hit by the initiative of the Indian Government. “SUVs and luxury cars to have an impact on sales in the short term. However, on the longer run, there would not be much effect. However, it would not have much impact on the small cars,” said Abdul Majeed, Partner, PriceWaterHouse.

With praises pouring in for the government’s initiative, several automobile honchos welcomed the move. Anand Mahindra tweeted, “Success required the element of surprise. Incredible that this master stroke was kept confidential. No leaks in this ship of Government!” Meanwhile, Bhavish Aggarwal, Co-founder & CEO, Ola said, “We welcome this landmark move by the Honorable Prime Minister. As a nation, this is our first major step towards a cashless economy, bringing convenience and transparency for every Indian. This move is integral in realizing our shared vision of a Digital India.”

We at AutoEsperto, welcome the bold decision by the Government of India and support it hands down. We expect the sales to catch up early next year and the BSE auto index to stabilize in a month following the 2.5% slump on Wednesday.

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