www.eminencejournal.

com ISSN: 2394 - 6636

INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH
VOL : 26, February , 2017

STUDY ON DEMONETIZATION AND ITS IMPACT ON THE

AUTOMOBILE SECTOR
SHILPA GUPTA
Assistant Professor, Dep’t of Commerce & Management, D.A.V College, Sec-10, Chandigarh

ABSTRACT
It was the night of 8th November ’2016 when the honorable prime minister of the country Mr. Modi
proclaimed surprisingly that the old currency will no more be valid in the economy and new notes will
be brought into circulation. The defunct Rs 500 note will be replaced by a new note, while the Rs 1,000
note will altogether be a ceased tender in the economy. New Rs 2,000 notes will be supposedly
liquidated into the system. The entire country was hit by this storm within a day. This sudden
announcement leading to ramifications would be felt throughout various sectors. Just at the time when
India’s automobile sector straddling passenger cars, SUVs, two- and three-wheelers, and commercial
vehicles, was opening the base to gather speed it came across a pace breaker in the form of
demonetization. The automobile sector got a huge blow right after the scrapping of the currency. The
month of November saw the bookings swooping down by 50%. However the subsequent month for
December 2016 showed even more shocking results for the auto makers in the economy. The sale of
vehicles in India dropped down to a 16 year low. The objective of the paper is to study the impact of
demonetization on the automobile sector. The sub objective of the study is to provide a base for the
future researchers in this area. Additionally, it will aid the people engaged in the business. The study is
basically descriptive in nature and is based on secondary data.
Keywords: Demonetization, automobile, segment, government.
INTRODUCTION
Demonetization is the act of stripping a currency unit of its status as legal tender. It takes place
whenever there is a change of national currency. The current form or forms of money is pulled from
circulation and is often replaced with new notes or coins. Sometimes, a country wholly replaces the old
currency with new currency. In India, all currency denominations of 500 & 1000 ceased to be legal
tenders, effective 9th November 2016. This surprise move taken by Honorable Prime Minister Narendra
Modi was to scrap the trouble of black money and corruption so as to speed up the move to a cashless
economy.
RESEARCH METHODOLOGY
For the fulfillment of the above objectives, data is collected basically on secondary basis. The secondary
data for the study was collected from different web sources and articles. The study is basically
descriptive in nature. The period and data of the study is selected on convenience basis in order to fulfill
the objectives of the study.
OBJECTIVES OF THE STUDY
The following are the objectives of the study:
I. To study the impact of demonetization on the automobile sector.
II. To study the future prospects of the automobile sector.
CONCEPT OF DEMONETISATION
The honorable prime minister of the country Mr. Modi proclaimed surprisingly that the old currency will
no more be valid in the economy and new notes will be brought into circulation. The defunct Rs 500
note will be replaced by a new note, while the Rs 1,000 note will altogether be a ceased tender in the

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INTERNATIONAL JOURNAL OF BUSINESS MANAGEMENT AND SCIENTIFIC RESEARCH
VOL : 26, February , 2017

economy. The government's sudden move on demonetization might have its impact on the regular day to
day working of the citizens of the country but the automotive industry too will suffer the consequences
of this sudden tornado.
IMPACT OF DEMONETIZATION ON THE AUTOMOBILE SECTOR
The Indian government’s bold move to invalidate large currency denominations in November has led to
a severe liquidity crunch across the nation. In an economy where trade in hard cash is deep-rooted; this
move of demonetization customarily resulted in a slowdown across several sectors. The automotive
sector is among one such cash-starved sector which is bearing this brunt and coping with this blow. In
the automobile sector, the scrapping of currency had a big effect. The month of November saw the
bookings swooping down by 50%. However the subsequent month for December 2016 showed even
more shocking results for the auto makers in the economy. The sale of vehicles in India dropped down
to a 16 year low. In December, the Society of Indian Automobile Manufacturers (SIAM) termed this
decision of demonetization as a temporary disturbance in the healthy industry and has anticipated that
it’ll pass quickly but evidently throwing the impact which will be deeper and might bring down a few
hopes. Automobile sales saw their biggest monthly fall in 16 years in December after Prime Minister
announced the decision on demonetization.
Two-wheelers: Two wheeler sales got hit due to cash crunch and the volumes declined by 5.9%
unexpectedly during November 2016. This decision has affected the manufacture of two-wheelers. The
biggest struggle for two-wheeler sales is taking place in the villages where the bike/scooter purchases
happen majorly via cash transactions, which have now are completely idle. Considering that only a
limited amount of cash withdrawals from ATMs and banks will take place, most of the customers have
decided to wait or drop the idea of purchasing. Sudesh Kumar, Dr.BimalAnjum and Dr.SumanNayyar,
2012 The study deals on financial decision in pharmaceutical industry in India through cost analysis.
Thestudy to measure the efficiency of capital structure on cost analysis. Secondary data collected from
annual report of industry in CIPLA Ltd, Auribindo pharma, Cardila Health Care Ltd using which
determine cost analysis with help of trend analysis to identify the cost of capital structure. The study
concluded that cost of capital little impact of the pharmaceutical industryWhile some producers are
preparing to stop production for few days to reduce inventory pressure; there are companies like Honda
which is delaying production. The steep sale was much more prominent in the motorcycle segment,
which de-grew by 10.2% while scooter volumes de-grew only marginally at 1.9%. Scooter sales were
down by 26.38% and motorcycles by 22.5%. Two-wheeler market leader Hero Moto Corp Ltd’s sales
during the month of December declined to 34% to 330,202 units. Motorcycle volumes at Bajaj Auto Ltd
dropped 11% to 106,665 units. Sales at TVS Motor Company Limited also fell 8% to 153,413 units,
inclusive of scooters’ sales.
Three-Wheelers: There was a big decline by 26% in November 2016 in domestic three wheeler section
following the impact of demonetization and further reduction of exports by 34% in 2016.
Commercial vehicles: Commercial Vehicle sales came down by a sharp 11.6% in November 2016 as
demonetization had put brakes on the buyers purchasing decisions. Tractors have also shown a decline
of 31% approximately between the months of October to November 2016. November was not good for
the commercial vehicles and transport industry. Heavy commercial vehicles (Trucks) declined by 19.1%
on while Light Commercial Vehicles (Trucks) sales volumes fell down by 10.4% on YOY basis.
However, sales of buses were better as compared to trucks, showing a growth of 10.9% over the prior
year. Heavy Haulage trucks were hit the hardest in this segment. A huge decline in the small and used
truck market as well, as second-hand truck sales are done almost entirely in cash.

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Passenger vehicles: Demonetization has led to a downfall on Industry growth and thereby affecting the
December sales also in this segment.
 Passenger vehicle sales at Mahindra and Mahindra Ltd, market leader in utility vehicles
(UV), dropped 8% to 18,197 units.
 Sales at Maruti Suzuki India Ltd and Hyundai Motor India Ltd fell 4% each during the
month.
 Hyundai Motor India Ltd (HMIL) domestic sales got down by 4.3% in December were at
40,057 units as against 41,861 units in the same month in previous years.
 Mahindra & Mahindra's sales in the domestic market were down 1.5% to 34,310 units
compared to 34,839 in the year-ago period.
 Ford India also saw its domestic sales dip by 6.04% to 5,566 units last month as against
5,924 units in the same month a year ago
 Hinduja Group flagship company Ashok Leyland reported a 12% decline in total sales at
10,731 units in December 2016.
 Country's largest car maker Maruti Suzuki India saw domestic sales in December at 1,
06,414 units, down 4.4% from 1, 11,333 units in December 2015.
 The overall retail sales were down by 24-25% immediately after the note ban and the walk-
ins at showrooms were down by 40%.
 Car manufacturers had to either shut down or delay production lines for 7 to 15 days in
December, in an effort to correct surplus inventory levels.
 A huge blow is felt in the second hand car market. Second-hand car purchases have slowed
down as well. Around 60% second-hand car sales have been affected due to the lack of liquid
cash with the buyers. Dealers across the country have reported that the purchase of used cars
has come to a virtual halt.
 The sale of luxury cars were down 30-50% just after demonetization.
 In rural areas, sales of automobiles have dipped by around 40% and are expected to go down
60% as farmers prefer to make payments by cash.
 The sale of vehicles in December 2016 declined to 1,221,929 units which is a 18.66%
decline.
 Major car makers have also issued statements saying that November sales have witnessed a
decline and that dealerships are struggling to clear out the existing stock.
 The instant impact of demonetization on the automobile sector was a dip in the BSE Auto
Index by 2.5 percent in December, 2016.
 As per the Federation of Automobile Dealers Associations (FADA), which represents almost
11,000 automobile dealers, accounting for more than 90 percent of automotive retail trade
and services industry in India, stated that the entire auto retail trade has come under severe
stress.
 Sale for cars without waiting period fell down to 30-50%. Overall, 25% fall in the sales was
witnessed month wise.
 As cash fuels many transactions, supply chains were hit badly.
 Many consumers were unable to dispose off their old vehicles straightforwardly.
 The accessories segment has also felt the heat of demonetization as it runs on cash majorly.
The market for components fell down by 60-70% in India.

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VOL : 26, February , 2017

Tractors: By the recent demonetization undertaken by the government, the sales of tractor declined by
27% in November 2016; whereby the exports growth also remained weak.
The following chart shows the year-on-year growth of various segments during April-October (before
demonetization) in comparison to November figures (during demonetization)

Two-wheelers, commercial vehicles, and tractor sales declined after demonetization, while passenger
vehicle and private car sales were flat as compared to the months preceding November.
CONCLUSION
Demonetization’s impact on the Indian automobile markets was a severe and sudden hit on the head.
The recovery will take three to four months as consumers are still hit by the note ban. Though it was a
short-term damage for the automotive sector but its sales should climb back to normal levels once new
currency is infused into the cash-starved economy. In a nutshell, although the car buyers and the
industry have suffered a setback, it seems to be a short-term hardship. Already, most new cars bought in
the country have been purchased using cashless payment options. However, entry level designs, two-
wheeler and used car sales are expected to remain shallow for a long period. The results however show
that domestic passenger vehicle sales in the country which was shaken due to the impact of
demonetization in November and December 2016 has somewhere managed to recover quickly. This
leaves only two-wheelers and commercial vehicle sales; which are still trying to get the wounds healed
which are left by demonetization. However, with the full support from Government and some changes in
the taxation policies, the industry is expected to revive and show fruitful results all over again.
FUTURE PROSPECTS
Although the short term blow has been negative on the automobile sector; the mid- long term scenario
appear constructive given the brunt of demonetization. The augmentation of the automobile industry is
likely to persist in 2017 in all the vehicle segments; passenger vehicles, commercial vehicles and two
and three-wheelers. There are a number of drivers leading to the positive opinion like, enhancement in
the 7th pay commission that will pump almost trillion of disposable income of majority of employees.
The Union Budget will give boost establishing a healthy business environment thereby, helping the auto

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industry contribute to national GDP. Another reason could be the cab aggregators who are going to
intensify their operations at length. Two-wheeler production is estimated to go up from 18.5 million to
34 million by FY20. With the BS-IV norms getting enforced from April 2017, Commercial Vehicle
segment will be on the recovery track. Tractor sales in India are likely to grow in double digits from
April 1 onwards. Passenger vehicle segment is expected to cross 10 million units by the year 2019-20.
The luxury car market segment is expected to grow and reach 150,000 units by 2020. The government
has set up National Automotive Board and National Automotive Testing- R&D Infrastructure Project to
act as aid sandwiched between the government and the industry. The government envisions developing
India as a global manufacturing hub. The position for the automobile industry in the economy looks
bullish post the period of cash crunch. The year 2017 seems very affirmative and promising with the
whole automobile industry looking ahead for optimistic growth.
REFERENCES
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Pharmaceutical Industry in India. Asia
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