Falling Rupee kills the Vroom of the Indian Auto Industry

The gears aren’t kicking in, the pickup is laboured and the ground clearance puts a tractor to shame. No, we aren’t talking about a recently released hatchback, but the Indian automotive industry. Caught unaware in the merciless grip of the falling rupee, the Indian auto industry is finding it hard to cope and respond. All eyes are fixed on the financial index- hoping that the rupee makes a comeback.

In the last quarter of the 2013-14 financial year, ending April- June, India’s gross domestic product growth has slowed down to an uncomfortable 4.4% as compared to the same time last year. Not surprisingly, the smallest growth index since 2009 has caught the undivided attention of the Indian government, terming it a ‘testing time’ for the automotive industry and an ideal stage for radical reforms and action.

In the 2012-13 fiscal years, the Indian auto industry accounted for 6.7% of the foreign direct investment into the Indian economy, a feat that seems out of reach considering the falling domestic demand in light of slowing economic growth. The rupee measures at around 67/dollar currently, having hit an all-time low of 68.85 a week ago. This will ensure increased costs of importing auto components from abroad- and add further pressure to the already strained situation. In 2012-13, a cool $13.1 billion worth auto components were imported by India.

The Indian auto industry seems to be in doldrums- car sales in India have seen a fall for nine straight months, from November 2012 to July 2013, and the upcoming festival season of Diwali isn’t looking very promising too. In order to cope with this downward spiral, many auto companies wish to hike the prices of their products. However, the parallel rise in fuel prices, higher interest rates on vehicle loans, ensures that this option faces insurmountable challenges even before it is introduced. An established name like Tata Motors too, has to wrestle with this problem.

There might be a silver lining- a weak rupee equates to cheaper prices for auto parts that are produced in India exclusively for foreign markets. An international brand such as Ford is optimistic about this evolving situation- an American brand hoping to improve its market standing after taking a beating back home. Maybe the only concrete way out of this situation is to encourage greater investment in the Indian auto industry (both FDI and Government measures). Less dependency on imports and a vastly incremented production capacity is the crying need of the hour.