Barring sales of second-hand vehicles and new tractors, the auto industry remains badly hit. Vehicles used for transporting goods are among the worst-hit segments
Will the Indian economy recover quickly from the June quarter lows? That’s the trillion dollar question facing investors today. One sector that offers vital clues in this regard is the automobile sector. Vehicle sales are among the key lead indicators of consumption and an important source of taxation for governments. They also happen to be among the largest providers of factory jobs in the organized manufacturing sector. Finally, the state of goods movement on our roads provides a good idea of how well the country’s economic engines are moving.
Right now, in an economy recovering from a vicious virus, most wheels of the automobile sector have begun moving, but at a very slow pace. Barring sales of second-hand vehicles and sales of new tractors, the momentum is weak. On sales, tax revenues, and movement, the auto sector is still far below pre-pandemic levels, shows monthly data from a government dashboard called Vahan.
The Vahan data is uploaded daily by regional transport offices (RTOs) across India. RTOs come under state governments. They deal with all transactions between vehicle owners and state governments like registration of motor vehicles, their taxation, issuance of permits to move goods, etc. At present, Vahan covers 32 of the 37 states and 1,238 of 1,446 RTOs.
Data for post-lockdown months shows that sales of second-hand vehicles are rebounding much better than new vehicles. On Vahan, a proxy for sales of new vehicles is transactions of ‘new registrations’. Similarly, a proxy for second-hand vehicles is transactions of ‘transfer of ownership’.
All through 2019, transactions related to transfer of ownership showed more resilience compared to registration of new vehicles. In April 2020, the first full lockdown month, both plunged. May, too, was poor. But in June, as lockdowns lifted, transactions of transfer of ownership bounced back to March levels. And in July, they were at the same levels as January and February. At a time when incomes have shrunk, this is suggestive of distress sales. Registration of new vehicles in June and July were still 50-60% below their Jan-Mar numbers.
Only a handful of auto segments have escaped the sharp drop in consumer spending brought on by the pandemic. As per Vahan data, 13 classes of vehicles saw 20,000 units or more being registered between January and August 2020. Only two classes improved their corresponding 2019 numbers or registered a modest decline: agricultural trailers, commercial tractors and agricultural tractors.
Agriculture is a thread running through them. As of July 31, there was a 14% year-on-year increase in sowing this monsoon season. With rains being good, and with more hands on the farm because of the reverse migration forced by the pandemic, tractor sales have held up. In every other class of vehicle, there is carnage, with the decline ranging from 24% (buses) to 53% (motor cabs). Sales of both cars and two-wheelers are down 31%.
The fall in sales is worse in the class of vehicles used to transport goods. In the January to August 2020 period, registration of goods carriers is down 41% compared to the corresponding year-ago period. This is also corroborated by the number of permits issued by RTOs to move goods.
RTOs issue two kinds of permits: goods permit (for movement within a state) and national permit (for movement outside the state as well). These are typically valid for five years. The number of goods permits issued from June to August is about 58% of January to March levels. For national permits, the figure is worse, at 48%. Further, monthly issuances between June and August have barely improved.
For states, the auto sector is important from a taxation perspective. Between 2010 and 2020, according to India’s central bank, taxes on vehicles accounted for about 5.4% of the own tax revenues of states (excluding what they receive from the Centre). In calendar 2019, the 32 states and union territories on Vahan collectively earned ₹50,530 crore from the auto sector.
The main head is motor vehicle tax (about 85% of total revenues in 2019), which is levied on purchase of a new vehicle. Beyond that, states earn revenues from services such as fitness inspection, registration and issuance of permits. Between January and August 2020, total auto revenues was 31% below its corresponding 2019 figure, worsening the fiscal stress states are facing.
In calendar 2019, 14 states earned more than ₹1,000 crore each by way of auto revenues, led by Maharashtra ( ₹7,536 crore), Uttar Pradesh ( ₹5,981 crore) and Karnataka ( ₹5,862 crore). Among these 14 states, the year-on-year fall in auto revenues ranges from 14% (Rajasthan) to 44% (Gujarat).
With the festival season around the bend, these numbers are expected to improve. The big question is whether the improvement will be a mild or a big one.