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Prime Minister Narendra Modi announced a Rs 20 lakh crore economic package yesterday and it has come as a relief to the Auto Industry. In fact, the announcement comes at a time where the entire industry has witnessed a total halt in operations, and a war for survival.
The Rs 20 lakh crore accounts for roughly 10 per cent of the country's GDP, and outside of just benefiting the auto industry, its component manufactures including micro, small, and medium-sized businesses, funds will also be used to help farmers, the working classes, the middle and lower-middle classes, and the unorganized sectors.
Expectations are that the amount announced by PM Narendra Modi will help increase demand for two-wheelers, and for compact vehicles in the country, and this demand will indirectly help the economy.
Mr Rajan Wadhera, the President at the Society of Indian Automobile Manufacturers said, "The promise of a Rs 20 lakh crore comprehensive economic package announced by the Honorable Prime Minister, focusing on economic activities and an overall aim of a self reliant India, will provide the right boost to demand and growth of our economy once again."
"Indian Automotive industry is a strong pillar of Make in India with huge contributions to GDP and employment and relies on its highly indigenized supply chain. We are hopeful that a focussed package to support the Indian automotive industry would be announced by the Hon'ble Finance Minister, when she announces the details of the package," he added.
Mr Vipin Sondhi, the Managing Director and Chief Executive Officer at Ashok Leyland Limited said, "The address by our Honourable Prime Minister, has lifted spirits and created positive sentiments. It was inclusive, comprehensive and compelling. While we await the details, the announcement of reforms-cum-stimulus to the tune of 10 per cent of GDP, amounting to ₹ 20 Lakh Crores has the potential to be sustainably beneficial to all sectors of the economy."
Industry leaders feel that the Commercial Vehicle industry will also stand to gain once the economy starts growing again. The concentration on self-reliance, along with the focus on creating local demand, and resurrecting local supply chains should provide enough to kick start the economy.
The Prime Minister also spoke of promoting locally manufactured and assembled products in the country, by increasing usage and also being more vocal in endorsing them. This will help encourage auto manufacturers to increase localisation levels, and will also help component businesses to flourish.
Mr Pawan Goneka, the Managing Director and Chief Executive Officer at Mahindra tweeted, "Two takeaways for me from the PM speech, besides the 20L crore package. We cannot be hostage to the virus and need to get on with our lives. We have to start buying local and be vocal about it."
The whole supply chain in the Auto Industry faced a disruption after the nation was put under a lockdown. To bring it up to speed and at peak functioning is the need of the hour as automakers have resumed both production and sales operations, at least partially, across the country.
The relief package announced could possibly go a long way, and could help driving customer sentiments which in-turn could increase demand. It should help to keep the wheel rolling and get the entire Eco-system in place soon.
Speculation is that the used car market will witness a demand after the lockdown is lifted because people feel the need of their own transport considering cabs are not functioning like they were. However, there is also a high possibility that most people will continue working from home, leading to lower demand.
Thoughts About The Likely Increase In Demand For Automobiles After The PM's Announcement Of Rs 20 Lakh Crore In Relief
While the thought is interesting and rather optimist, there is no guarantee that the Industry will witness an immediate increase in demand. There is also no guarantee that people's spend patterns will change once this amount is flooded into the economy. Right now, we think health and well being will take top priority.