Is the Auto Industry Really 49% of India’s Manufacturing Sector? Does It Employ 37 million?

india auto industry

The answer to both questions is: No. The real figures are only a fraction of these figures.

Who is putting out such high figures?
The heads of the automobile industry. Auto industry bodies claim that the automotive sector accounts for 7 (or 7.5) per cent of India’s GDP, 49 per cent of manufacturing output, and 37 (or 40) million jobs“directly and indirectly”.

Why are they propagating these false claims?
By inflating the contribution of the auto industry to GDP and employment, the auto barons hope to squeeze out even more concessions and subsidies from the Government.

These are the figures Anand Mahindra uses to demand tax concessions of the Centre, saying that “kick starting the auto industry with a few short-term measures will serve a greater national purpose”. The same figures are trundled out by the Maruti Suzuki chairman to demand that state governments do their bit to rescue the auto industry. Bodies representing automobile manufacturers, component makers, and car dealers have cited the same figures to the Finance Minister while pressing for a stimulus package. A Google search for these figures turns up innumerable citations in the media (for example, here,here,here,here,here, and here).

Does the auto industry deserve a bail-out package from the Government?
It is true that India’s automobile industry has been in a crisis for about a year, with output falling for lack of demand. (The current crisis in the non-banking financial companies sector, which funds a large share of auto purchases, has been the immediate trigger.[1]) Sales of the major firms are spiralling downward. Lakhs of workers are reported to have lost their jobs and are suffering. Most of them are contract workers: the auto industry has a particularly high rate of contract labour.

However, the entire manufacturing sector, and indeed the economy as a whole, appear to be on a downward spiral, and jobs losses are rife in many sectors. Sectors of the economy which have traditionally provided the most livelihoods – agriculture, textiles, construction, petty retail, unorganised manufacturing – have been in crisis for some time now. Auto industry chieftains are aware that, to jump the queue for State aid, they need to project that their industry has a broader economic and social benefit – a “greater national purpose”, in Mahindra’s words – in addition to  corporate profits.

What are the real figures of auto sector GDP and employment?
In fact, automobile and auto ancillary manufacturing units (including commercial vehicles, two-wheelers, auto parts, rubber tyres, and so on) employ only 1.4 million persons or so.[2] This was only to be expected; automobile manufacture is a very capital-intensive industry, not a job-spinner.

Moreover, these industries’ combined share of GDP would be around 1 per cent, and their share of the manufacturing sector would be about 6.4 per cent.[3] These figures are small fractions of the figures being circulated by the industry chieftains and quoted glibly by the media.

What about jobs in the automobile and two-wheeler sales and service sub-sector?
Counting sales and repair units would add substantially to the number of auto-related jobs. Sales and repair of automobiles and two-wheelers employed around 0.78 per cent of India’s workforce in 2017-18.[4] That means around 3.8 million workers (about 0.9 million workers in sales, and 2.9 million workers in repair and servicing). Adding these jobs to those in automotive manufacturing, we get a figure of about 5.2 million workers in auto sector production, sales and service – a large number, but still a far cry from the 37-40 million talked of by the industry chieftains.

How does the auto industry get its inflated figures?
Auto industry barons inflate the ‘indirect’ employment by including a much broader range of jobs, including those of vehicle drivers, insurance agents, and so on. According to the Automotive Mission Plan 2006-2016 (which was largely authored by the auto industry itself) a car generates 5.3 jobs, a commercial vehicle 13.3 jobs, a two-wheeler 0.5 jobs and a three-wheeler 3.9 jobs.[5] How are these ratios arrived at? That is not revealed. However, applying these ratios yields absurd results: the domestic sales of the auto industry in 2018-19 alone should have resulted in the creation of more than 44 million jobs![6] Even after netting out the vehicles that would be scrapped in a year, the figures are scarcely credible.

As for the auto industry’s claim that it accounts for 49 per cent of the manufacturing sector, and 7 per cent of GDP, we have no idea how they have arrived at these figures.

Does the manufacture of cars create jobs for drivers, car cleaners, insurance agents, etc?
It is not the production of a car or a truck that causes a driver to be hired. Before a driver is hired, that car or truck must be bought by someone. Now, when overall demand in the economy is growing, demand for transport too rises, causing cars and trucks to be bought, and drivers to be hired. The problem today that there is a slump in aggregate demand.[7] Indeed the auto sector crisis brings out precisely that the auto industry does not create all those jobs in, say, transport. Rather, one could say that demand for transport creates demand and jobs in the auto sector.

What aid does the Government give the auto sector?
The Government is already subsidising the auto sector. The bulk of these subsidies are provided by state governments, in the form of cheap land, loans, and tax concessions. For example, it was estimated that the Gujarat government under Modi gave the Tata Nano project subsidies that amounted to Rs 60,000 per car – for a car that was initially to have been sold at Rs one lakh![8] The details of the Nano project were brought to light, but similar, less publicised, subsidies have been provided also to other automobile firms. The subsidies indeed are much larger if we take into account the vast expenditure by Government bodies on road projects in urban areas, which are largely used by private vehicles.

Recently, the Finance Minister made a flurry of announcements to revive the sector: the Union government would remove its self-imposed ban on purchase of new vehicles for itself; declare a scrappage policy; postpone revision of registration fees on vehicles to 2020; and permit additional depreciation of 15 per cent on inventory. But auto barons want more, and are stepping up the pressure. Their immediate demand is that GST on cars be slashed from 28 per cent to 18 per cent.

Should the Government be promoting automobile use?
No. The Government should be promoting public transport, not private vehicles. It is a perverse policy to make the growth of the automobile industry a public priority, and indeed to talk of it as a “Superstar Sector”, as the Government’s Make in India platform does. Automobiles create pollution and traffic congestion in urban areas. The main sufferers are the majority of the urban population, who do not own automobiles. Even those sections of the working people who buy two-wheelers may do so under a sort of compulsion, for lack of better and cheaper public transport options. The decline of public transport is indeed linked to the growth of private automobiles and the auto lobby.

There are thus pressing reasons for not subsidising the automobile industry. No doubt those losing their jobs in the automobile industry are suffering today. However, the growth of more socially desirable industries, or, in the alternative, urban employment schemes as part of a larger economic plan, could absorb those who lose their jobs in the automobile industry.

Which economic activities urgently need Government support, if not the auto industry?
It is striking, but not surprising, that vastly greater attention is being given to the automobile industry at present than is accorded the unorganised sector. More than four-fifths of India’s employment is in the unorganised sector. Even excluding agriculture, more than two-thirds of remaining employment is in the unorganised sector; we are talking of around 160 million workers. This sector was taking a beating even before 2016, but demonetisation and GST have dealt it terrible blows. Here job losses are often invisible, taking the form of a steep decline in income rather than outright unemployment. However, no corporate lobbyists are busy conjuring up figures and headlines for the pink papers regarding the job losses of the unorganised sector; its representatives are not granted exclusive audiences with the Finance Minister; nor does she call hurried press conferences to announce stimulus packages for these millions of Indian producers who are facing a profound depression of demand.

[1]According to rating agency ICRA, NBFCs in recent years helped fund the purchases of 30 per cent of passenger cars, 55-60 per cent of commercial vehicles and 65 per cent of two-wheelers.

[2] According to the latest data for the organised factory sector (Annual Survey of Industries 2016-17) , manufacture of motor vehicles, bodies for motor vehicles, trailers and semi-trailers, parts and accessories for motor vehicles, two wheelers, and rubber tyres engaged 1.3 million persons in all. Unorganised sector manufacturing data are for 2015-16: automobiles manufacturing engaged less than 96,000 persons in this sector (Economic Characteristics of Unincorporated Non-Agricultural Enterprises (Excluding Construction) in India, National Sample Survey, 73rdRound).

[3] Organised factory sector (ASI) Gross Value Added for the above-listed auto and ancillaries heads totaled Rs 146,556 crore. Unorganised sector auto manufacturing GVA was Rs 1509 crore in 2015-16 (NSS 73rdRound). GDP in 2016-17 was Rs 152,53,714 crore; manufacturing Gross Value Added in 2016-17 was Rs 23,29,220 crore.

[4] Periodic Labour Force Survey, 2017-18.

[5] “While direct employment is by way of workers engaged in the production of automobiles and auto components, indirect employment is generated in feeder and supplier industries to the automotive industry, such as the vehicle financing and insurance industry, vehicle repair, service and maintenance outfits, automobile and auto component dealers and retailers, vehicle drivers, tyre industry, amongst others. It is estimated that, on a conservative basis, 5.3, 13.3, 0.5 and 3.9 units of direct and indirect employment are generated per unit of car, CV, 2-wheeler and 3-wheeler produced respectively.” – Automotive Mission Plan, 2006-2016.

[6] The auto industry claimed domestic sales in 2018-19 of 3.4 million cars, 1 million commercial vehicles, 7 lakh three-wheelers, and 21.2 million two-wheelers.

[7] The slump in demand is accentuated, no doubt, by crises in the banking and NBFC sectors, but those crises too are not wholly independent of the slump in demand.

[8] The Tatas received a Rs 9,750 crore soft loan, to be repaid over 20 years at an interest rate of 0.1 per cent. Apart from this, the state government was also to provide a four-lane road connectivity and exempt the Tatas from electricity duty, registration and transfer charges of land. Further, it would put up a waste disposal plant, supply natural gas through a pipeline and provide 100 acres near Ahmedabad for a township. Congress in Gujarat alleged that the subsidies amounted to Rs 60,000 per car.

Courtesy : rupeindia, September 9, 2019 .

( The Research Unit for Political Economy (R.U.P.E.), located in Mumbai (Bombay), India, is constituted under the People’s Research Trust. The R.U.P.E. runs on voluntary labour and limited finances raised from personal contributions. It is not affiliated to any other body.

The R.U.P.E. publishes Aspects of India’s Economy, a journal which aims to explain day-to-day issues of Indian economic life in terms that can easily be understood, and to link them with the nature of the country’s political economy.

This blog has been started with the same general aim as Aspects, but in the hope that we will be able to respond more quickly to current events.)




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