Mint Explainer: Why the auto sector is not out of the woods

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Subscribe to enjoy similar stories. Sales of small and mid-sized cars have long served as a barometer of middle-income consumption and economic health. When these numbers shift, they often reflect deeper trends rippling through the broader economy.

Now, with India’s GDP growth slowing to 5.4% in the second quarter of FY25—the weakest since late FY23—the signals from the automobile sector are hard to ignore. While the Reserve Bank of India (RBI) and the finance ministry suggest the slowdown has bottomed out, data from the automobile industry offers a more complex narrative. Festival demand gave a temporary lift in October, with compact cars and two-wheelers seeing a spike thanks to the bunching of festivals, according to the Society of Indian Automobile Manufacturers (SIAM) and the Ministry of Road Transport and Highways’ Vaahan dashboard.

But by November, most vehicle categories—except two-wheelers—had slipped back to pre-October levels. Read this | Passenger vehicle sales slide in November as stock pile-up in showrooms persists Amid this uncertainty, there is cautious optimism. Rising rural incomes after a good kharif harvest and increased government capital expenditure are expected to lift demand in the coming months.

However, data from the Controller General of Accounts reveals that capex spending was 15% lower at the end of the first half of the fiscal year, with this trend continuing through October. Delayed spending, particularly during the general elections and government formation in May, June, and August, was cited by companies as a key factor behind weaker financial results for the second quarter. Read this | Shaktikanta Das's term ends amid rising inflation, GDP slowdown Mint breaks down the challenges,