Economy

‘High fuel prices may have led to a slowdown in auto sales’

Our Bureau Mumbai | Updated on April 25, 2019 Published on April 25, 2019

High fuel prices may have been one of the reasons for the recent slowdown in automobile sales, according to the latest Mint Street Memo of the Reserve Bank of India.

The paper, authored by Saurabh Ghosh, Pawan Gopalakrishnan, Abhinav Narayanan and Shekhar Tomar, has tried to analyse whether easy availability of auto loans boosts car sales and if high fuel prices act as a dampener.

“Based on our analysis, we find that the recent slowdown can be explained by relatively high fuel prices,” said the paper, What Drives Automobile Sales? It’s Not Credit.

Automobile sales have slowed down in recent months. According to a recent report by the Society of Indian Automobile Manufacturers, domestic car sales in 2018-19 grew just 2 per cent to around 22.19 lakh units in 2018-19, against 21.74 lakh units in 2017-18.

The research paper has also noted that company-level stock prices data show that the valuation of auto firms reacts inversely to fuel price movements. “This evidence corroborates the importance of fuel price movements for the automobile sector,” it said.

Additionally, the evidence from micro data on automobile registrations suggests that policy changes such as vehicle insurance can also induce short-term fluctuations in the automobile sector. “We can conclude that the recent decline in vehicle sales can partially be attributed to the increase in fuel prices as well as the policy shock of insurance announcement,” the paper said, adding that once prices began to soften after mid-October last year, there was an uptick in automobile sales (excluding two-wheelers) in January 2019.

Another possible factor for the slowdown in vehicle registrations over the last few years could be the “maturity in ride-hailing service segment”, it said.

Since taxi registrations account for around 6 per cent of the overall four-wheeler market, the decline in overall four-wheeler sales in the last two years can be partially attributed to this factor, it noted.

Published on April 25, 2019
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