Economic bodies, including the central bank and the International Monetary Fund, have revised India’s growth forecast for 2019-20. The slowdown is visible in the sales of cars, motorcycles, scooters, commercial vehicles and tractors. Mint analyses the implications.
How did high-speed economic indicators perform in March?
In March 2019, sales of cars, motorcycles, scooters, commercial vehicles (CVs) and tractors fell in comparison to March 2018. They fell by 6.87%, 14.27%, 25.19%, 4.71% and 14.97%, respectively. Data over the last five years (between April 2014 and March 2019) shows this is only the second time when growth of all five economic indicators has fallen during the course of a month. Before March, the only other time this had happened was in February 2019, when sales of cars, motorcycles, scooters, CVs and tractors dropped by 4.33%, 0.58%, 12.14%, 8.77% and 0.52%, respectively.
What does their performance tell us?
Sales have fallen for two consecutive months, something which did not happen during the last five years. Indeed, this is a worrying sign. It needs to be remembered here that no one forces anyone to buy vehicles. Buying a car or tractor, for that matter, is a major expenditure, and that can only happen when individuals feel confident about their economic future. They feel they are in a position to dip into their savings and make a down payment, and/or pay an equated monthly instalment (EMI) on a loan. Falling sales of CVs, cars, motorcycles, scooters and tractors tells us this confidence is missing.
Did sales go down in any month before February and March 2019?
The closest was in December 2016—the month after demonetization. Sales of cars, motorcycles, scooters and CVs fell, but those of tractors went up.
How is all this linked to an economic slowdown?
Scooter and car sales are a great indicator of urban consumption power. Similarly, motorcycle sales indicate the presence or lack of urban and rural consumption power. Tractor sales tell us how the rural rich are feeling economically. Faster sales of CVs indicate robust activity in infrastructure, as well as on the industrial front. Considering that sales of all these indicators have fallen over the last two months, it tells us that consumption power is slowing down. And that’s not good news.
What about forecasts of over 7% growth?
India’s gross domestic product has been questioned lately. But that apart, economic growth of over 7%, with consumption and investment indicators falling, essentially implies jobless growth. Jobless growth is not sustainable because, if people who need jobs don’t get them, they will not earn, and if they don’t earn, how will they spend? If they don’t spend, how will businesses earn money and economic growth happen?
Vivek Kaul is an economist and the author of the Easy Money trilogy.