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Automotive companies witness sluggish demand in rural India

Monday, Feb 23, 2015

The declining rural market has once again put the Indian automotive industry in a spot which was recovering on excise rebates after being in the dumps for two years.

Fears of dwindling demand on deficient monsoon, lower farm output, and a moderation in growth of support prices of foodgrain could erode all the gains the industry has made in recent times.

Major segments like tractors, motorcycles and utility vehicles have shown a sharp decline over the past few months, while the recent demand for passenger cars is also beginning to taper off.

"Rural demand has been sluggish for the past few months, and there are no visible signs of recovery. Realisation for the agri-industry has been impacted due to deficient monsoon, which has slowed the entire rural economy down and impacted the demand cycle," said Rakesh Srivastava, senior vice president for marketing and sales at Hyundai Motor India.

Auto companies like Hyundai Motor India, Hero MotoCorp and others witness sluggish demand in rural marketTractor sales have been the worst hit, plunging by 9% in the current fiscal. Tractor sales, an important barometer of economic sentiment in rural markets, dipped the steepest — 22% — for the three-month quarter ending December.

"There's a need to boost demand in the rural economy as farmers are left with little cash that is jeopardising the entire demand-cum-sales trend in these markets. The government must make fundamental changes in the rural economy to drive demand as the sector has witnessed sharp downturn in the past few months," says Rajesh Jujerikar, head of tractor business at Mahindra & Mahindra.

The motorcycle segment, that drives sales in the Indian automotive market, may take a huge knock.

Senior industry insiders say that the slowing demand could plunge the entire automotive industry into negative territory. Motorcycles form bulk of the two-wheeler sales in India, and constitute more than 11 million of the total 15 million two-wheelers sold in the country. Its sales dipped 6% to 8.68 lakh in January over the previous month.

"Market sentiment in rural areas has been impacted due to various factors, including the curtailment of NREGA spends, poor crop realisation and moderating wages. With the marriage season coming up in April, industry expects market sentiments to improve," theHero MotoCorpBSE -0.44 % spokesperson said. In fact, slowing demand is hurting most players.

Analysts believe that rural incomes are directly impacted by the 12% shortfall in rains this year which has increased the cost of crop production significantly leading to lower disposable income in the hands of farmers and traders that form the main pillars of the economy, which in turn, has put the brakes on the auto industry.

"Weak monsoon during 2014 had increased the crop cost of production, leading to lower disposable income in rural areas. At the moment, overall sentiment in rural areas is down resulting in pressures on rural sales that are likely to remain depressed for the large part of 2015," said Amit Kaushik, principal analyst at IHS Automotive, a multinational consultancy firm.

Farm incomes from sectors like sugarcane are the worst hit as farmers have not been paid harvest prices from last year in Uttar Pradesh and Maharashtra. "Even this year, the situation has not improved as farmers are forced to make distress sales, that are leaving them with little cash in hand," said a senior executive from an automotive sector.

Industry experts believe that recovery prospects over the near term are weak. While motorcycles sales are down, scooters are doing well in urban pockets. Scooter market has increased to around 3.7 million in this fiscal, a 27% growth over last year and remains the fastest growing segment in the entire automotive market
 

http://economictimes.indiatimes.com/

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