Demonetisation trims off Rs. 8k cr; recovery quicker: Mahindra & Mahindra

PTI

Demonetisation shaved off as much as Rs.8,000 crore in revenues of auto and tractor industry during November and December but the recovery has been quicker than anticipated and normalcy will be restored by month-end, said Pawan Goenka of Mahindra & Mahindra.

In an interaction with PTI, he said if all of the drop in automobile and tractor sales in November and December were to be attributed to junking of 500 and 1,000 rupee notes and not any other seasonal factor, the loss to the industry may be of the order of Rs.8,000 crore or 10% of total revenue.

"The effect was deeper than we had thought and the recovery is also quicker than we thought and I believe that by end of March we would be through," he said.

Goenka, who is the Managing Director of M&M, said the long-term beneficial impact of demonetisation on the economy would be very much if the government was able to do what they had set out to do with the note ban.

Sales momentum in the automobile industry, which was on a high after a good festive season in September and October last year, came to a halt when the ban on Rs.500 and Rs.1,000 notes was announced in early November, according to Goenka.

"We have worked out... some kind of formula that tractor and auto industry lost Rs.8,000 crore revenue in November and December. The way we have done that (is) what was the growth rate up to October and if that growth rate had continued in November and December what would have happened versus what has (actually) happened (in terms of sales). That's a fairly straight forward calculation. Its Rs.8,000 crore for the industry and its about 10% loss of revenue," he said.

In November, vehicle sales across categories registered a decline of 5.48% at 15,63,665 units, from 16,54,407 in November 2015. It was the steepest decline in 43 months when total sales had declined by 7.75 per cent in March 2013.

In December, monthly automobile sales growth in India had slipped to a 16-year-low in December, with total vehicle sales declining by 18.66 per cent at 12,21,929 units compared to 15,02,314 in December 2015.

According to SIAM, most of the major segments, including scooters, motorcycles and cars, witnessed record decline in December sales due to cash crunch following demonetisation.

Stating that the auto and tractor sectors were "in very high momentum" in September and October, Goenka said: "The kind of sales we had in October, I have not seen in a long time."

In September 2016, total sales of vehicles across categories grew by 20.16% to 22,60,992 units as against 18,81,643 units in the year-ago month. There was a growth of 8.14% to 22,01,571 units in October 2016 from 20,35,905 units in October 2015.

Goenka further said: "It (demonetisation) just stopped the momentum and then it takes time to build up because there is no rational reason why people do not buy now." 

He said at present there are "too many uncertainties" such as the upcoming GST and that "probably is having bigger psychological impact" on consumers.

While the overall impact on demonetisation "was very deep in November and December", he said it has started improving in January and "I think by now we are almost done and I believe that by end of March we will be through".