It is mid-day at Labour Chowk, a traffic circle in India’s motor manufacturing hub of Manesar, and hundreds of jobless men are hanging around in the sweltering heat, hoping to be picked up for a day of paid work.
Labour Chowk is a prime spot for hiring day labourers, typically the poorest and least skilled workers. Now their numbers are swollen with those who have lost full-time jobs in the crisis-hit motor sector.
Krishna Kumar, 32, a migrant from rural Uttar Pradesh, was laid off on August 7 from a job at a components company that makes brakes for Maruti Suzuki, the country’s largest carmaker. Having lost his monthly salary of Rs12,000, he is scraping by on credit from the local grocery shop and money from his parents.
“I just come here every day and wait for work,” said Mr Kumar, who has two young children. “I will wait for one or two months, and if I don’t get a job, then I’ll go back home. As of now, I have no hope.”
Mr Kumar’s anxiety is shared by millions of other workers as well as policymakers and investors as they wait to see whether the motor sector will bounce back after five consecutive months of double-digit sales contractions, including a 41 per cent year-on-year drop in August.
Economists say collapsing car sales reflect the deep malaise afflicting the Indian economy after three successive shocks which started with prime minister Narendra Modi’s 2016 cash ban, followed by the 2017 adoption of a new value-added tax regime and finally last year’s financial sector troubles which were precipitated by the collapse of a highly rated lender.
In the wake of these disruptions, consumer demand — one of the economy’s main growth drivers over the past decade — has weakened considerably, especially for big-ticket items such as cars, televisions, washing machines and homes.
“This kind of conk-off in auto demand is highly unusual in fast-growing economy,” said Saurabh Mukherjea, chief executive and founder of Marcellus Investment Managers. “Cars are a classic aspirational symbol, and the fact that this kind of aspirational spending has been put on the back burner shows how deep the distress is. It was one punch too many for the economy.”
The question now is whether consumer demand will rebound in the next few months or remain sluggish, fuelling a broader slowdown.
The demand destruction that has taken place over three years has resulted in the auto sector reeling
“The demand destruction that has taken place over three years has resulted in the auto sector reeling,” said Sunil Kumar Sinha, principal economist at India Ratings. “Now even the auto sector employees themselves are being laid off, which will further pressure the economy.”
Trouble in the motor sector has huge potential ripple effects. Cars account for an estimated for 7.1 per cent of India’s gross domestic product and 49 per cent of its manufacturing GDP, according to a 2015 study. It is also a main source of employment in an economy with a chronic job shortage.
According to the Society of Indian Automotive Manufacturers, car factories employ around 300,000 people, component makers employ around 5m, and dealerships employ another 3m. In total, direct and indirect motor sector employment — including truckers who transport cars across the country — is estimated at around 37m people.
But as a result of slowing sales, at least 350,000 people directly employed in the motor sector had been laid off as of early July, SIAM estimated, with many let others let go over the past two months.
Even those who retained their jobs have had huge cuts in their take-home pay as companies scrap the overtime that once accounted for a substantial portion of workers’ earnings.
“They said ‘we are not getting orders and there is no enough work so no overtime’,” said Gayatri Devi, 26 whose husband works for a firm supplying components to Honda.
As his daily working hours fell from 12 to eight, the family’s monthly earnings dropped by Rs5,000 to Rs12,000. That, in turn, has put a squeeze on her household budget. “I never had to think about spending on the basic items, but now I have to think,” she said. “Everyone wants a good life, but for a good life you need money.”
Mahipal Yadav, who owns a grocery shop and a dorm with 232 rooms for car workers and their families, is feeling the impact too — and not just because 10 of his units are empty for the first time since he built the complex eight years ago.
“Earlier, people were getting lots of overtime and they were spending a lot more. Now they are barely getting enough money to get by,” he said.
Back at Labour Chowk, Gautam Kumar, a 26-year-old father of three, is deeply pessimistic. Laid off from a components maker five months ago, he has sent his wife and children back to his village in Bihar and is surviving on money sent to him each month by his father, a village schoolteacher.
“Every day, 10 or 20 people from our circle are going home,” he said. “I am just waiting here in the hope that I will get some work because there is no profit in farming.”
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