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Automotive sales, a key marker of domestic consumption demand in the country, has seen a discernible softening in urban areas, raising concerns about a weakening of the growth momentum in the Indian economy. The key driver of the decline in demand has come largely from the more affordable end of the market — the sub-Rs 10 lakh category — which has been on a downward trajectory for several quarters now.
The story in the auto sector follows that of many other sectors which are a key representative of the growth momentum. Companies in the fast-moving consumer goods (FMCG) sector have already pointed out some early signs. Top executives at Tata Consumer Products Ltd have flagged concerns over “softness” in urban demand while those at Nestle India pointed to megacities and metros as pressure points, and blamed the indications of “muted demand” partly on high food inflation.
On Tuesday, RC Bhargava, chairman of Maruti Suzuki India, said that while overall retail sales in the country were up by 14 per cent over last year, sales in urban areas saw a dip, even as rural areas showed an uptick. He attributed the slowdown in sales in urban areas to the Lok Sabha elections and the erratic monsoon.
Though the company has seen good traction in the festive season, Bhargava said that the growth in domestic car sales has been “somewhat slower” despite no shortage of semiconductors or black swan events like the coronavirus pandemic.
He highlighted that the biggest source of worry comes from the fact that the market for passenger cars under Rs 10 lakh has seen a sharp decline. “The under-Rs 10 lakh segment, at one point, accounted for 80 per cent of the cars sold in India (around 2018-19), but that number is not growing… this trend could continue… Unless the lower end of the market grows, there are no feeders to the upper segment,” he said.
As per data from the Federation of Automobile Dealers Associations (FADA), sales of four-wheeler passenger vehicles in the first half of 2024-25 fell nearly three per cent compared to last year in urban areas, even as such sales in rural areas grew close to 5 per cent. In fact, data from the dealers’ grouping shows that sales of two-wheelers, three-wheelers, commercial vehicles and tractors all fell in urban areas in the same time period in the range of 1-12 per cent.
For Maruti Suzuki, which is the bellwether of India’s automotive market, their domestic sales of passenger vehicles between April-September of FY24 were more than 3 per cent lower than the same period in FY23. In September 2023, the company sold more than 1.5 lakh passenger vehicles in India, whereas in September 2024, the company sold less than 1.45 lakh passenger vehicles.
In the first quarter, GDP growth had already moderated to around 6.7 per cent from 7.8 per cent in the previous quarter. During the second quarter of July-September, this could moderate even further to around 6.5 per cent (much lower than RBI’s projected 7 per cent) amid a slowdown in investment and industrial activity that could compound the slowdown in discretionary consumption sector, especially in urban centres, that Maruti, Nestle and Tata Consumer are alluding to.
According to the Finance Ministry’s economic review for September, rural demand continues to improve, as reflected in increasing fast moving consumer goods (FMCG) volume sales and a rise in three-wheeler and tractor sales. However, urban demand appears to moderate due to softening consumer sentiments, limited footfall due to above-normal rainfall, and seasonal periods during which people tend to refrain from new purchases, the Ministry said.
