Covid in India

Ammar Master, Senior Manager, Asia Pacific Vehicle Forecasts

14 May 2021

Pandemic tsunami impacts India’s recovery

The relentless escalation of COVID-19 in India has required state governments to impose containment measures (read lockdown), thus forcing vehicle manufacturers to temporarily bring down the shutters at their plants from the end of April. This is reminiscent of the situation in the second half of March last year. The rapid spread of the pandemic first urged state governments to implement localised lockdowns, which were soon followed by the nationwide quarantine that began on 25 March 2020 and ended a little over two months later.

One can debate the causes of this most recent national catastrophe: new variants of the virus that spread much faster; the lack of government sense in holding election rallies; the Kumbh Mela festival that was attended by at least nine million pilgrims; behavioural choices of the population at large, etc. These various factors led to 6.9 million Indians being infected with the disease in April alone.

At the time of writing, at least 15 (out of a total of 37) states and union territories are under strict containment measures (i.e. lockdown), including the New Delhi National Capital Region, as well as the states of Haryana, Maharashtra and Tamil Nadu, home to the country’s automotive production hubs. More regions could announce restrictions as the pandemic has started to spiral out of control even in rural areas.

Ashok Leyland, Honda, Hyundai, Mahindra & Mahindra, Maruti-Suzuki, MG and Toyota, along with two-wheeler makers Hero MotoCorp, Honda Motorcycles and Scooter India, India Yamaha Motor and Royal Enfield have already announced plant closures, and more are likely to follow suit. The regional lockdowns have also led to component makers shutting down operations for the time being.

Taking a lesson from how last year’s nationwide lockdown battered the economy, the central government has, so far, refrained from imposing the same measure. In fact, it has avoided using the word ‘lockdown’, instead urging local governments to implement ‘containment’ measures, along with increased testing and tracking. But as infections continue to skyrocket, calls for a nationwide lockdown are growing.

Meanwhile, the inadequate supply of medical equipment (oxygen cylinders and ICU beds) has highlighted the suffering of Indians to the world, while the shortage of COVID-19 vaccines has plagued the government’s plans to quickly inoculate the majority of the population against the virus.

India’s automotive industry rebounded rapidly after last year’s nationwide lockdown was lifted, and that strong sales momentum carried through to the early part of this year. From end-April, however, the recovery has been derailed by the devastating spread of the pandemic. Buyer sentiment has tanked; dealerships are shut in areas where containment measures are in place; and plants are being suspended.

We cautiously assume that the rate of infections will subside by August-September, further aided by the improved supply of vaccines.

With that in mind, we lowered our 2021 sales and production forecasts by 305,000 units. The revised sales outlook is at 3.9 million units (+39% year-on-year), compared with 4.21 million (+50% year-on-year) previously. The 2021 production forecast has been adjusted to 4.49 million units (+39% year-on-year) from our earlier estimate of 4.79 million (+48% year-on-year). The cuts in May and June were more pronounced, but were partly offset by a stronger outlook for August-December, when catch-up demand and improvements in the supply chain should boost volumes.

The situation in India remains highly fluid, and there is a further downside risk to the forecast if the state governments extend the local lockdowns beyond May and the pandemic does not subside within the next few months.

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