Car factory
Plummeting sales and rising inventory have forced India's largest carmaker to cut production for the sixth month in a row. Reuters

A downhill skid of India's auto sector is apparently indicative of the worsening economic slowdown, with the largest carmaker Maruti Suzuki forced to cut back production by 25.15 percent for the sixth consecutive month in July. Media reports citing a regulatory filing show Maruti produced 1,33,625 units in July, compared with 1,78,533 units year on year.

Automakers sought major incentives at a meeting with Finance Minister Nirmala Sitharaman to tide over the crisis. Media reports suggest the carmakers have sought a reduction in the Goods and Services Tax (GST) from 28 percent to 18 percent. They have sought more time to reduce the emission standard BS-IV vehicles in their inventory as the government is set to release BS-VI norms next year.

The carmakers are also worried about the government push for electric vehicles. Industry sources believe the current crisis engulfing the auto sector could directly impair Prime Minister Narendra Modi's job generation and Make in India initiatives.

Maruti produced 1,30,541 passenger vehicles last month against 1,75,456 units in the same month of the previous year, marking a decline of 25.6 percent, according to a PTI report. Production of mini and compact segment cars, including Alto, New WagonR, Celerio, Ignis, Swift, Baleno, and Dzire, stood at 95,733 units as against 1,27,715 units, down 25 percent year on year, the report said.

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As the auto sector shrinks downstream and upstream industries are also feeling the pinch with many factories laying off staff.Reuters file

Industry observers suggest the slumping sales of cars and motorcycles are triggering major job cuts in the auto sector, with many companies forced to shut down factories for days and axe shifts. The repercussions of the slowing economy could be felt in many upstream industries, including steel, with many producers on the verge of closure and larger ones resorting to staff layoffs.

Downstream industries like component and spare parts makers have also reportedly been hit by the production cut in the auto sector. According to a Reuters report, the auto industry and related sectors shed nearly 3,50,000 jobs in April.

The report says at least five companies have recently cut or plan to cut hundreds of jobs, mainly from their temporary labour force. The downturn - regarded by industry executives as the worst yet - is posing a big challenge to the Modi government at a time when the country is engrossed in developments in Jammu and Kashmir, where tensions reign high across the border with Pakistan following the part abrogation of Articles 370 and bifurcation into two Union Territories of J&K and Ladakh.

Automotive Component Manufacturers Association of India (ACMA) director-general Vinnie Mehta says the sector is experiencing a "recessionary phase".