Monsoon Inspires Hope

Dear friends,

It is comforting to note that after a prolonged slowdown phase, the auto market is gradually attaining a semblance of stability. There seems to be a marked improvement in the market sentiment with the Monsoon covering almost the entire country. This comes as a major relief after two successive years of drought.

It is heartening that the Indian economy is slowly but surely moving up the growth curve. Notwithstanding the methodological concerns raised by some of the agencies about the GDP growth rate of 7.6% for the year 2015-16 put out by the Government, there is no denying the fact that the Indian economy is the fastest growing economy in the world, surpassing the GDP growth rate of China. The above-normal monsoon rains forecast for this year coming true means that the embattled rural economy that has been facing uncertainty for some time will get a major boost, accelerating the pace of economic growth further.

Needless to mention, though the agriculture sector contributes about 16-17% to the Indian GDP, its performance plays a pivotal role in stimulating or muting the economy. In other words, the catalytic effect of rural economy and, for that matter, agriculture sector cannot be overemphasised.

Another piece of good news is that the implementation of Seventh Pay Commission recommendations by the Central and State Governments and payment of arrears of the salary & pension hikes is likely to leave a lot more money in the hands of the people for discretionary spending on consumer durables, including motor vehicles. You will recall that it was chiefly the implementation of Sixth Pay Commission recommendations, along with the stimulus package rolled out by the Government at that time, which saved India from plunging into worldwide recession post financial crisis resulting from the Lehman collapse in 2008-09.

While the good GDP numbers are music to our ears, there are pitfalls on the way, which are cause of concern. The inflation is climbing up again. The food prices, in particular, have skyrocketed. The key policy rates were not reduced by the RBI at its bi-monthly monetary policy review in June 2016 due to surge in inflationary pressures. The central bank wanted to wait and watch before announcing further reduction in interest rates. As the inflation, particularly, food inflation, is unrelenting and remains at the elevated levels and there is spurt in commodity prices as well, the expectations of further cut in Repo rate at its next bimonthly review by the RBI in August are not high.

Secondly, the private investment is still not picking up. While the analysts are comfortable with the level of investment in India, it has largely been supported by the Government spending. There is a little possibility of private investment picking up any time soon, as the private investment and the inflation have a strong correlation in inverse proportion. If you look at the successful economies of the world – China, Korea, Taiwan – all grew very rapidly when their inflation rates were low. However, high FDI inflows into India is very positive for the economy. Therefore, we, in automotive retail trade, remain optimistic that the Indian auto market will be on a sustainable high-growth trajectory soon.

Regarding the activities of FADA, we are proposing to hold, in association with Google India, a workshop on digitalisation of dealership operations in Hyderabad in August 2016. The workshop will be dovetailed with the meeting of FADA Council.

The exact date, time and venue of the workshop will be intimated to FAA members, as and when finalised. Since the seats are limited, the participation will be on First-Come-First-Serve basis.

You are welcome to send your views and inputs.

With best wishes,

Yours sincerely,

K V S Prakash Rao

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