Domestic Automotive Industry Expected To Grow At High Single-Digit Rates In FY24: ICRA

The domestic automotive industry has seen a healthy revival in the current fiscal, aided by a recovery in economic activities and increased mobility, and is expected to grow at high single-digit levels across segments in FY24, a report said on Wednesday.

Category-wise, passenger and commercial vehicle volumes could see a growth of 6-9 per cent and 7-10 per cent, respectively, the two-wheeler and tractors are estimated to grow at 6-9 per cent and 4-6 per cent, respectively, in the financial year starting April 2023, domestic credit ratings agency ICRA said.

According to the agency, the demand sentiments for a majority of the automotive segments such as passenger vehicles, commercial vehicles and tractors have remained healthy, aiding in the improved off-take for the industry participants.

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

A similar trend of relatively weak off-take 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, 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," said Shamsher Dewan, Senior Vice President at ICRA.

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, he said.

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, Dewan added.

Even as electric two-wheelers 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, it stated.

ICRA has a forecast of a CAGR of around 6-9 per cent across automotive segments over the medium-to-long term. Supporting underlying factors such as rising per capita incomes, demographic profile, low vehicle penetration, favourable policy environment including infrastructure development etc are expected to help grow the industry demand at a steady pace, the ratings agency said.