India's automotive industry to weather another poor year before recovery

Weak domestic and global demand may force factories to suspend operations.

A report from Fitch Solutions showed that vehicle production and sales in India are likely to shrink amidst the pandemic. Over the first two months of FY2020-2021 (April and May), India's vehicle production contracted over 95% YoY as the country implemented lockdowns.

Following this, automakers will likely continue to face operational disruptions stemming from supply chain bottlenecks and localised COVID-19 outbreaks, which would force factories to suspend operations. The suspension will further reduce the country's vehicle production in FY2020-2021. Based on the facts and figures, Fitch forecasts India's vehicle production to reduce by 12.7% in FY2020-2021, after a 19.2% reduction in FY2019-2020.

Vehicle sales may also shrink whilst the country's economic outlook deteriorates, stemming from the escalating conflict risk with China and with the COVID-19 containment measures in place. Through the first two months of FY 2020-2021, vehicle sales in India plunged over 93% YoY and Fitch forecasts a 16.6% dive in FY2020-2021.

However, Fitch Solutions noted that their forecast shows a positive sales figure in the auto industry in the same period as the government’s infrastructure development plan and the expected vehicle purchasing incentives will escalate demand. Production is also projected to rise as PSA, Hyundai, and MG Motor establish new plants.