India’s automobile sector is witnessing a disruption in the supply chain due to COVID-19, which is set to cost Rs 6,080 crore to the industry in the last quarter of FY 2019-20.
As per the research firm Care Ratings, the first quarter of FY 2020-21 will also be impacted by this disruption. The firm has also indicated at the potential job losses due to the contractual nature of the 50 per cent of workforce employed in the sector.
According to the industry expert Pawan Ruia, India has a massive $57 billion automotive component industry. However, it still imports parts worth about $17.6 billion every year. Even in the first six months of 2019-20, India imported parts worth $2 billion from its neighboring country China.
Talking about the present scenario, the Care Ratings said, “China is currently operating at below average capacities. Given the conditions, the country is expected to fully recover only by Q2 FY21, provided the spread of Covid-19 is curtailed.”
“Therefore, the Indian component industry is expected to witness supply chain disruptions in the domestic market during Q4 FY20 and Q1 FY21 to the tune of around USD 8,000 million, while local sourcing is expected to increase going forward,” it added.
At this juncture, COVID-19 is likely to put more pressure on the industry which is already witnessing an unprecedented slowdown in the domestic market, according to the firm.
On the other hand, the net sales of the automobile OEMs also witnessed a 14 per cent year on year decline, while auto ancillary players witnessed a decline of 11.7 per cent in the first nine months of this fiscal.
The profitability of the industry was also dented by 27 per cent (9M 2019-20), while overall volumes declined 13 per cent from April 2019 to February 2020.