State of Economy-III: Auto sales to remain stuck in slow lane; as elections decelerate growth
Consumers sentiment is expected to remain stuck in the slow lane for the auto industry, as anxiety over general elections, financing constraints and farm distress dent the sector's sales.
 
The slowdown in auto sales reflect the picture of the Indian economy, which is being dragged by low demand especially from rural areas. 
 
Alarmingly, a slowdown in the sector will have a cascading impact on other industries like steel and most importantly on job creation. 
 
Nonetheless, industry observers expect the demand environment to remain subdued in the near-term, till the time, ongoing election season lasts and high-base effect persists. 
 
"This trend of slow down or de-growth is expected to continue in the near term," Sridhar V., Partner with Grant Thornton India, told IANS. 
 
"Election, new government, global issues like tariff war between US and China, embargo on Iran restricting India's purchase of crude from them could all impact the way this sector evolves in the medium term."
 
Besides, the external factors, the introduction of Bharat Stage VI which will bring in new engine types has caused anxiety, consumers are said to be waiting for the implementation of the new emission norms before making new purchases. 
 
According to Rahul Mishra, Principal at A.T. Kearney: "With BS VI introduction in the coming months and the push in prices, the situation is going to remain depressed."
 
Other bottlenecks such as financing constraints due to the NBFC (Non Banking Financial Company) crisis has also hit the industry.
 
"NBFCs play a critical role in financing and driving sales and the depressed credit growth has been a prime reason for the overall slowdown," Mishra said.
 
Additionally, an overall downtrend in the farm sector growth has also decelerated the demand for tractors, pick-ups and two-wheelers.
 
"The farm sector distress has had an effect on two-wheelers, tractors and farm equipment," Mishra said.
 
"A good farm sector performance has a cascading effect on driving the overall growth in the economy across, primary, secondary and tertiary dependent sectors." 
 
In terms of a recovery, experts believe a gradual acceleration in sales pick-up will take place, once the election period gets over.
 
"Growth is likely to recover from H2 onwards when fleet operators will start placing orders before new emission norms get implemented," said Subrata Ray, Senior Group Vice President, ICRA. 
 
"Stable government at the Centre, and continuation of investments in the infrastructure space and rural demand scenario will be key variables." 
 
As per data points, passenger car sales which indicates urban and semi-urban demand declined 19.93 per cent in April to 160,279 units from 200,183 units sold during April 2018.
 
The Society of Indian Automobile Manufacturers data showed the number of utility vehicles sold domestically went down by 6.67 per cent to 73,854 units, while 13,408 vans were sold last month, down 30.11 per cent from the same month of 2018.
 
Overall, passenger vehicle sales declined 17.07 per cent in April to 247,541 units, from 298,504 units in the same month last year.
 
In the commercial vehicle segment, which is the key indicator of economic activity, domestic sales went down by 5.98 per cent to 68,680 units last month.
 
"The slowdown in CV sales is visible in the general freight cargo segment, while tipper truck sales have been growing at a healthy pace because of investments in infrastructure and construction sector," Ray said.
 
Similarly, overall sales of two-wheelers, which include scooters, motorcycles and mopeds, edged lower by 16.36 per cent to 1,638,388 units.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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COMMENTS

Veeresh

5 days ago

Symbolic of the analysis is the photograph of used cars up for resale shown on top of this article. The sheer number and quality of used cars/bikes especially in the 2-5 year range is breath-taking, by some estimates 3x the number of new cars/bikes and 1/3rd the price of a new car/bike. In addition, buying a second hand or used car/bike provides the prospective buyer with a hands on feel and the confidence in a local dealer is more than with a larger showroom staff. Manufacturers selling new motor vehicles need to get their act together soon, and better do some serious fixing of the way they approach the end consumer, or they will be down and out like legacy businesses.

State of Economy-II: Private investment remains tepid in highway sector
Highway development has been in top gear on massive public spendings, but private sector appetite has remained tepid in the last four years of the NDA rule due to NPA-heavy public sector banks shying away from the sector.
 
Awarding large number of highway projects on the innovative Hybrid Annuity Model (HAM) and the popular EPC (Engineering, Procurement and Construction) contracting arrangement has given much-needed comfort to the crippled developers, but it was not enough to allow them to bid for the purely BOT (build-operate-transfer) projects.
 
Moreover, the shifting of financing risks from the private sector to the public sector (National Highway Development Authority or NHAI) has overstretched the latter's balancesheet.
 
The government has largely awarded road projects on HAM and EPC, which are purely public-funded models. The NHAI on behalf of the government releases 40 per cent of the total cost for a HAM project, which was launched in early 2016, thus kick-starting the project. Only the remaining 60 per cent is arranged by the private developers. Under the EPC model, the entire funding comes from the government agency.
 
Together the two models have largely driven highway development in the country in the last four years.
 
But sector specialists now say that even the HAM model has been losing its steam due to banks becoming "very careful and choosy" while funding highway projects.
 
"The banks are still not convinced about the costing of a lot many highway projects. They are not throwing enough money which will revive the private sector appetite. The HAM projects have definitely taken care of the current liabilities of the developers and it keeps the machines running, but not beyond that," said the chief of a private developer, wishing not to be named.
 
Vishwas Udgirkar, Partner at Deloitte India, agreed and said that the banking system was not supporting the road sector significantly.
 
"Private sector interest in the road sector has been limited because developers are in problem and the banks have higher NPA levels," Udgirkar said.
 
The NHAI had awarded 7,400 km of road in fiscal 2018, with most of the projects being awarded in March. In all, 3,400 km of HAM projects were awarded in 2017-18.
 
In the first half of fiscal 2019, the NHAI awarded about 300 km road, mostly via HAM. Ever since the HAM was introduced, a total of about 130 projects have been awarded on this model and a combination of BOT (annuity) and EPC.
 
"About 35-45 per cent of the 120-plus projects awarded on HAM are yet to achieve financial closure," said Sandeep Upadhyay, Managing Director and Chief Executive Officer, Centrum Infrastructure Advisory.
 
The reasons for the delay in fund tie-ups largely revolve around banks, but weak balancesheets of the private players and doubts about project costs too have contributed to it. There are investors who doubt if the NHAI would stick to its commitments given its overstretched balancesheet.
 
"Two years later when these projects get commissioned and repayment to banks start, there is the risk that NHAI would make sure that grant on the annuity amount comes. The risk perception is building in the market, leading to less projects getting financial closure," said the chief executive of a firm working with various investors.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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The Country That Exiled McKinsey
A dubious project in Mongolia raises serious questions about the world’s most prestigious consulting firm and its work for corruption-plagued regimes.
 
In 2010, amid a historic commodities boom fueled by the explosion of China’s economy, international companies began turning their attention to Mongolia as it opened its vast deposits of coal and copper to commercial exploitation. Mongolia, which is located on China’s northern border, stood to make prodigious sums of money if it could sell that copper and coal to its resource-hungry neighbor.
 
To make that happen, Mongolia concluded that it needed to lay thousands of miles of railroad tracks. Such a project would cost billions of dollars and throw off hefty fees for construction companies, banks, law firms and consultants of various stripes. The consulting contracts alone could be worth tens of millions over a decade. And if the railroad expansion worked out, there’d be even more opportunities after that.
 
McKinsey & Co., the global consulting beh­emoth, was interested. In the fall of 2010, Jimmy Hexter, a senior partner at the firm, began talking with Mongolia’s government about the railroad project. Hexter had spent decades in the region, at one point running McKinsey’s office in Beijing. He was a veteran of multiple infrastructure projects in Asia, a global leader of the firm’s infrastructure practice and enthusiastic about Mongolia’s potential.
 
Operating there required unusual caution. Earlier in 2010, the U.S. State Department had issued a warning. Corruption was on the rise in Mongolia, the State Department explained, and U.S. enterprises needed “measures in place to detect and prevent” it. In a section titled “current views on Mongolian corruption,” the first problem cited was a “blurring of the lines between the public and private sector brought about by systemic conflicts of interest at nearly all levels.”
 
A year after that warning was published, Hexter and McKinsey did exactly what American diplomats had cautioned could be risky: The firm signed a consulting agreement with a government entity even as the government adviser who brought McKinsey into the project also landed a piece of the same contract for his own private company.
 
McKinsey acknowledges that it did not vet the adviser or his company in any formal way. The adviser, Chuluunkhuu Ganbat, played a central role in shaping the country’s rail expansion. Mongolia’s state-owned rail company hired a team assembled by Ganbat, with McKinsey playing the leading role, to conduct an analysis of whether the railroad plan was feasible. McKinsey’s payment was little more than an introductory fee by the firm’s standards — $4 million — but the contract spelled out that McKinsey would be eligible for more lucrative multiyear contracts if the project progressed.
 
The railroad expansion quickly went bad. Construction stalled amid financial problems and political uncertainty. By 2015, Mongolian police were investigating claims of widespread embezzlement and fraud. McKinsey was drawn into the investigation, with authorities ordering the firm to hand over records related to the project.
 
The scrutiny rattled McKinsey enough that its then-head of Asia operations, Kevin Sneader, went above the heads of investigators. Shortly after police approached the firm, he wrote to Mongolia’s prime minister without copying the investigators.
 
He insisted the firm had done nothing wrong and is “committed to the highest professional and ethical standards.” The letter suggested that Mongolia’s commercial prospects might be better served if McKinsey were a partner. It cited the prime minister’s “strong interest in promoting U.S.-Mongolian business ties and growing third-neighbor investment in Mongolia.” Later in the letter Sneader offered to “discuss with you in more detail our firm’s desire to further contribute to the Mongolian economy or our work in Mongolia to date.” McKinsey says its letter had no inappropriate purpose. Sneader has since become the global managing partner of McKinsey, the firm’s highest position.
 
Mongolian prosecutors did not charge McKinsey. But the case and the events that led up to it, which have never been reported apart from limited articles in the Mongolian press, are part of a disturbing pattern for the consulting giant. The Mongolia episode bears a striking similarity to the firm’s actions...Continue Reading
 
 
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