According to a research by ICRA, a solid recovery in economic activity and greater mobility helped the domestic car industry in FY23.
According to the ratings agency, demand attitudes for the bulk of automotive segments, including tractors, commercial vehicles, and passenger cars, have remained positive.
The two-wheeler market, however, is also experiencing difficulties because industry volumes are still below their pre-Covid peak levels. Even while the recent holiday and wedding season’s improved offtake gave reason for confidence, a durable recovery in demand emotions has not yet been observed, according to the report.
The entry-level car market has also shown a similar trend of rather weak offtake, suggesting that during the previous few years, the large increase in vehicle prices and interruptions brought on by the pandemic have somewhat reduced the purchasing power of consumers at the base of the pyramid.
“We anticipate high single-digit growth across all automotive sector categories in FY2024. While the volumes of the passenger, commercial, and tractor segments will continue to rise because to favourable demand drivers, the two-wheeler industry is also anticipated to post modest volume increase thanks to a low base.The MGNREGA rural employment programme, the improvement of irrigation facilities, the crop insurance programme, and higher targets for agricultural credit are all likely to receive increased budgetary outlays in the Union Budget for 2023–24. The budget is anticipated to assist strengthen the rural-led demand across segments because initiatives to support rural areas are anticipated to be at the centre of its policies, according to Shamsher Dewan, senior vice-president and global head of Corporate Ratings at ICRA.
According to the survey, government support in the form of subsidies under the FAME-II policy, increased awareness, and an increase in product introductions have all contributed to the electric vehicle segment’s prospects significantly improving over the previous 18 months.
Electric vehicle penetration across segments is growing exponentially, according to ICRA, even though e-2Ws have accounted for about 85–90% of all EV sales (excluding the e-rickshaw segment).
Original equipment manufacturers (OEMs) are anticipated to make large investments in the creation of entirely new electric vehicle platforms and the expansion of manufacturing capabilities throughout the ongoing electrification transition, according to the ratings agency.
To support the expansion of the regional industrial ecosystem, the government has launched a number of programmes in recent years, including the FAME II programme and production-linked incentive programmes. More announcements from the government are probably coming in this direction, such greater financing options for electric vehicles.
According to the report, domestic industry volumes will continue to fuel growth in the short term, with export prospects remaining dim due to inflationary pressures and a lack of dollar availability in some important markets. The report also notes that many countries have placed import restrictions in order to conserve foreign exchange, which is anticipated to reduce export volumes in the short term.
However, it continues, competitive manufacturing capabilities and continuous OEM initiatives to improve the distribution network are anticipated to support export volumes over the medium future.
Over the medium to long term, ICRA predicts a CAGR of roughly 6-9% across all automotive segments.
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