India's auto sector to grow at high single digit in FY2023-24: ICRA

The domestic automotive industry is expected to grow at high single-digit levels in 2023-24, a report by rating agency ICRA said. According to the report, the demand for the passenger vehicles segment is expected to grow at 6-9 per cent, commercial vehicles by 7-10 per cent, two-wheelers by 6-9 per cent and tractors by 4-6 per cent in FY24.

This is compared to a projected 21-24 per cent growth for passenger vehicles, 18-20 per cent for commercial vehicles, 9-12 per cent for two wheelers and 0-4 per cent for tractors in FY23.

The domestic automotive industry has seen a healthy revival in FY2023, aided by a recovery in economic activities and increased mobility. The demand sentiments for a majority of the automotive segments, viz. Passenger vehicles, Commercial Vehicles, and Tractors have remained healthy, aiding in improved offtake for the industry participants, it said.

However, the two-wheeler industry continues to struggle with industry volumes still below the pre-covid peak levels; even as improved offtake in the recent festive and marriage season has provided optimism, a sustained recovery in demand sentiments is yet to be seen.

A similar trend of relatively weak offtake has been seen for the entry-level car segment, implying that the purchasing power of the consumers at the bottom end of the pyramid has been eroded to an extent over the past few years by the significant rise in vehicle prices (a result of price hikes to combat inflationary pressures and meet stringent regulatory requirements) and disruptions caused by the pandemic, it added.

Commenting on the outlook for the automotive industry, Shamsher Dewan, senior vice president and group head - corporate ratings, ICRA, said, “We expect growth across automotive industry segments to remain at high single-digit levels in FY2024. While the passenger vehicle, commercial vehicle, and tractor segment volumes would continue to trend upwards, aided by favourable demand drivers, the two-wheeler industry is also expected to record moderate growth in volumes aided by a low base.”

“The Union Budget 2023-24 is expected to include enhanced budgetary outlays towards rural employment under MGNREGA, rural infrastructure development, enhancement of irrigation facilities, crop insurance scheme, as well as an increase in targets for agricultural credit. With measures to help rural communities expected to be at the heart of its policies, the budget is expected to aid in boosting the rural led demand across segments,” he added.

Spurred by Government support in the form of subsidies (under the FAME-II policy), enhanced awareness, and increasing product launches, the Electric Vehicle segment has seen a significant upturn in prospects over the past 18 months.

Even as e-2W’s have accounted for approximately 85-90 per cent of the total EV sales (excluding the e-rickshaw segment) aided by subsidies offered by the Government, electric vehicle penetration across segments is increasing at an exponential rate.

Amid the ongoing electrification transition, OEMs are expected to incur significant investments in the development of ground-up electric vehicle platforms and enhance manufacturing capacities.