Fuel Prices Matter For Domestic Automobile Sales, Credit Offers No Significant Impact

Fuel price movements matter for aggregate growth in domestic automobile sales while credit appears to have no significant impact, noted a research update titled "What Drives Automobile Sales? It's not Credit" from the Reserve Bank Of India (RBI). The update noted further that impact of crude prices is also reflected in the market valuation of automobile firms. Disaggregated data on vehicle registrations and provide evidence that exogenous policy changes such as vehicle insurance and the maturing of the ride-hailing services segment have generated short-term fluctuations in automobile sales. The paper opines that the recent slowdown in automobile sales can broadly be explained by high fuel prices and exogenous policy changes.

The automobile sector is one of the most dynamic sectors in India that contributes significantly to both growth and employment. In addition, it has a large labour-intensive ancillary sector, and has important horizontal and vertical linkages with other industries. The Indian automobile sector has shown phenomenal growth in the past five years, posting an average annual growth of around 8 per cent in the number of domestic vehicle sales. It has not only expanded in the domestic market but has also grown abroad and constituted 2.3% ($16.6 billion) of the overall Indian exports in 2018. However, domestic auto sales witnessed slower growth in the past few months, especially during the Diwali festive season.

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