The automobile industry is often viewed as a barometer for economic performance of a country. This is because car-manufacturing requires iron ore, steel, aluminium, rubber, etc. Manufacturing all this in turn requires material, money (capital), intelligence, research and development. For this, we need tons of people. Driving cars requires roads. Road Infrastructure leads to automatic connectivity. The automobile industry thus requires a bit of everything. It touches almost all the components that make up an economy. Thus, it forms the very core of economic activity. So overall the health of an auto industry is a good indication on the condition of an economy.
India's auto industry has witnessed a boom in the past decade which coincided with the fast economic growth. For the first time in nine years, India's passenger car sales may fall in FY12. Domestic passenger car sales declined 1.19% in the 10 months of April-January. Unless the domestic passenger sale grows by 10% to 12% in the remaining two months, India is going to post a decline in car sales numbers.
High interest rates and pinching petrol prices, at a time of uncertain economic outlook, hit the car industry badly this fiscal, forcing companies to increase customer offerings for reviving demand. However the Society of Indian Automobile Manufacturers (SIAM) expects vehicle sales to increase by 11% to 13% in FY13 if the Reserve Bank of India (RBI) begins to ease interest rates soon. Given the industry's current state of affairs, this seems like an ambitious target.
Any continuous slide in the fortunes of the automotive industry would have an impact on other dependent industries and, in turn, on those employed in the sector. Then, it may spread to other sectors such as lifestyle products and consumption, making any hopes of recovery of the economy that much more difficult.