India Market Watch: Auto Sales to Increase, Hiring Rates Decline in IT, and Ikea Benefits from Less Regulations

May 3, 2016 Posted by India Briefing Reading Time: 5 minutes

Strong Passenger Vehicle Sales Expected in 2016-2017

The passenger vehicle (PV) industry’s domestic volumes could grow by 8.5 to 9.5 percent, as per a report by the research and rating agency, ICRA. The projection is due to “the return of first-time buyers and replacement demand”. The optimistic outlook is further supported by the recent economic upturn, a favorable monsoon prediction, and the impact of the Seventh Pay Commission.

ICRA expects that new launches in the utility vehicle (UV) and PV segments mean that they will outperform the overall automobile industry growth this year. The PV segment, in fact, grew at about eight percent in 2015-2016 to sell 2.02 million units. Leading manufacturers like Maruti Suzuki and Honda have all raised their sales projections for 2016-2017 to double-digits. Meanwhile, the Society of Indian Automobile Manufacturers (SIAM) stated that the UV segment grew at about six percent year-on-year to sell 586,000 units. Also improving is the demand for road logistics. Sales of medium and heavy commercial vehicles (CV) like trucks could grow at about 13 to 15 percent in 2016-2017.

Nevertheless, the extent of profitability in the auto industry will be determined by multiple factors. Foremost among these are increases in expenses in product development and labor costs, discount-led sales strategies, restricted pricing power, and commodity price volatility.

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Indian Government Assures IKEA of Loosening Import Regulations

Ikea is to set up a warehouse on land near Jawaharlal Nehru Port, east of Mumbai, bringing in foreign direct investment (FDI) worth U.S. $1.58 billion (Rs 10,500 crore). If it materializes, this will be the largest foreign investment in the single-brand retail category, which is why the Ministry of Finance has sped up clearances. Ikea could then set up its first store in Hyderabad in 2017 with significant ease.

The Finance Ministry has two programs aimed at importers – the Accredited Clients Program (ACP) and Authorised Economic Operator (AEO) scheme. The former extends to trusted importers the benefit of fast track custom clearance. It allows for full facilitation and accepts importers’ self-declarations on valuation of assets, apart from the random check from customs officers. The AEO scheme allows for deferred payments of customs duty, direct port transfers, relief from routine checks, and a decrease in pre-eligibility conditions.

Ikea, in 2013, lobbied with the then United Progressive Alliance (UPA) government to allow the company to source from any domestic market player rather than only small and medium enterprises. The present National Democratic Alliance (NDA) government has been more accommodating. It has cut red tape to help Ikea locate store sites that are strategically positioned near primary causeways or metro stations. Also worth noting is that the eligibility criterion of U.S. $1.51 million (Rs 10 crore) worth imports in the previous fiscal, is eliminated, to encourage medium and small enterprises.

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Indian IT industry to See Lower Hiring Due to Automation

The trend towards automation is why India’s information technology (IT) industry posted its seventh year of improving productivity and efficiency and increasing revenue, despite lower hiring rates. Nasscom estimates show that while in 2015-2016, 16,055 engineers were required to generate every additional U.S. $1 billion of export revenue, this figure was much higher at 31,846 engineers in 2009-2010.

The Indian IT landscape is changing, moving away from areas like low-end outsourcing and low cost software development, to newer, high-paying services like cloud computing and data analytics. The transition has seen prominent IT firms like Tata Consultancy Services (TCS) and Infosys, adopting software bots and robots to perform commoditized jobs at the fraction of the cost and time taken by a human engineer.

Several large outsourcing firms have successfully improved their numbers in ‘non-linear growth’. This means the revenue increases disproportionately to the labor hired. In effect, competition in the hiring industry now targets employees skilled with the understanding of automation, artificial intelligence, machine languages, and data sciences, rather than mere proficiency in computer programming alone. Thus, while industry hiring growth will continue, it will be at a much lesser rate.

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