No, finance minister. Indian millennials are not to blame for the automobile slowdown

Wrong diagnosis.
Wrong diagnosis.
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India’s automobile sector is going through its worst slowdown in years.

While experts have traced the crisis to a host of factors, from lower disposable incomes to a credit squeeze in the banking sector, finance minister Nirmala Sitharaman has pinned the blame on the “millennial mindset.”

“The automobile and components industry has been affected by…the mindset of millennials who prefer to use ride-hailing services such as Ola and Uber,” said Sitharaman while addressing the media yesterday (Sept. 10). “They (millennials) do not want to commit to taking equated monthly installments (EMIs).”

Sitharaman’s comments came a day after the sector reported its steepest monthly decline in sales since 1997-98. Vehicle sales across categories, including passenger vehicles (PVs), two-wheelers and commercial vehicles (CVs), fell 23.55% year-on-year in August, according to the industry body Society of Indian Automobile Manufacturers (SIAM). PV sales were particularly hit, falling 31.57%.

Are millennials really to blame?

While millennials are known to prefer access over ownership, that mindset cannot be solely blamed for everything that’s wrong with the sector or the economy as a whole.

  1. High GST rates on automobiles: The goods and services tax (GST) levied on cars is a whopping 28%. The industry has been desperately voicing the need to slash the tax.
  2. Unemployment: Joblessness, and eroding wages, have also been identified as one of the reasons why today’s youth don’t want to buy a car. The unemployment rate in India in 2017-18 stood at 6.1%, the highest in 45 years.
  3. Rural slowdown: Cab aggregators like Ola and Uber are largely restricted to metro cities and, to some extent, the tier-II cities. Sitharaman’s argument, therefore, does not explain why vehicle sales have slumped in rural India. Two-wheeler sales—a key indicator of demand from rural India—fell 22% year-on-year in August, according to SIAM.
    Tractor sales, too, have been hit. Market leader Mahindra & Mahindra (M&M), in August, reported a 17% decline in sales from a year ago. “Right now, it appears very unlikely that the tractor industry will be able to achieve strong positive growth. I think our tractor segment will end up the year with 0-2% growth,” Pawan Goenka, managing director at M&M said on the sidelines of the SIAM annual conclave on Sept. 6.
  4. Commercial vehicles: Ola and Uber’s popularity, also do not explain why truck and bus sales in August dropped 39% from a year ago. The grim situation has forced CV maker Ashok Leyland to observe non-working days in five of its units this month. In August, the company had reported a sharp drop of 47% in sales. A number of contract labourers have been laid-off, too, reported the Quint.
  5. Overall slump: Sales are not declining in the auto industry alone. There is a fall in consumption across sectors like fast-moving consumer goods (FMCG), for instance. People are not buying even small-ticket items such as biscuits.

While Sitharaman did not explain various factors behind the slowdown, she listed out a few attempts to revive automobile sales, including lifting the government’s self-imposed ban on buying vehicles. But industry representatives have made appeals to the government for a bigger stimulus package.

“We are working on a few things. We are conscious that we need to respond,” Sitharaman said at the press meet yesterday, adding that the GST Council will decide on taxes at its Sept. 20 meeting.