Car ownership reveals much about the shape and state of our economy

The car one owns, in contrast, is not just far more publicly visible, it is a status symbol in India. Cars cost much more than other durables and they are seen as indicators of prosperity.

In the absence of credible data on household income levels in India, especially among the well-off, patterns of car ownership (which also includes jeeps and vans) offer clues of relative earnings and wealth. 

It can also be used to understand differences in income levels among people working in different sectors of the economy, and across major Indian states.

In 2022-23, 6.7% of Indian households owned one or more cars, according to our estimates based on data from the Household Consumption Expenditure Survey; 3.7% of rural households owned a car, while urban car ownership was 13.2%. 

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The survey does not ask the number of cars owned. Among agricultural households, whose earnings are mainly from farming and other primary-sector sources, only 3.3% had cars. 

For those earning most of their livelihood from the industrial sector (including manufacturing and construction), the figure was 6.2%, and for households receiving most of their income from services, it was nearly 9%, the most among the three broad sectors.

According to the same survey, 35.5% of Indian households were agricultural and around 11% industrial, while 53.5% were service households. Also, 72% of all car owners were service households, well above the sector’s share in total employment.

In general, this pattern suggests higher income levels in services than in the rest of the economy. Note that higher pay scales also allow people to take car loans to fund their purchases. There is one caveat, though. 

The survey does not allow us to segregate cars purchased in people’s individual capacity but used for business purposes, such as cab services, or vice-a-versa (cars purchased on business accounts but for personal use).

Among India’s major states, a higher proportion of service households own a car than industrial households, except in Odisha. Kerala, by far, is the leader, with around 27% of service households owning a car. Gujarat, Haryana, Punjab and Maharashtra follow.

In Karnataka, only 11% of service households have a car, which suggests a low share of infotech and IT-related-services jobs in the state’s overall pie of service employment and also greater income inequality.

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There is higher variability in car ownership among agricultural households across states. A much lower proportion of agricultural households own a car than industrial households, except in Punjab and Haryana.

Punjab is also the only major state where a larger proportion of agriculture households own a car than service households. Every fourth agriculture household owns a car in Punjab, while it is less than one in seven among service households. 

In Kerala, every fifth agricultural household has a car. In addition to prosperous farming sectors, these states have higher remittance inflows, which may aid in the purchase of cars. If farming households own cars, their earnings even on an individual basis are likely to be above the minimum personal income tax threshold. 

Farm income, though, is currently exempt from this tax. Rich farmers also benefit from a variety of agricultural subsidies and have access to minimum support prices that prop their income. 

India should sort out issues of the determination and reporting of farm costs, gross revenues and the net income of farmers, so that the rich among them can be taxed.

Car ownership data could also explain likely youth job preferences. In India, gross enrolment in higher education among 18-23-year-olds was 28.4% in 2021-22. The government’s education policy aims to increase it to 50% by 2035. 

In the states like Tamil Nadu, it is already near that level. In comparison, only 39% of 18-24-year-olds in the US were enrolled in college or graduate school in 2022. All those who enrol in higher education do not complete it. In 2021, about 62% of students in India completed a bachelor’s degree within six years. 

But once young adults acquire higher education, regardless of its quality, working in the services sector is their natural choice. People are drawn to service jobs because they tend to offer better pay and more opportunities for advancement. 

Equally importantly, employment in services allows people to engage in physically less strenuous work. It is also easier to switch employers in this sector.

India faces an urgent challenge of creating good-quality service jobs on one hand and raising the average quality of higher education on the other. As an increasing supply of graduates and other highly educated young people crowd into India’s labour market, the average returns on higher education may fall further in the face of excess supply. 

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Technological advancements such as artificial intelligence (AI) and automation would also make many of today’s service jobs, including those in the infotech sector, redundant.

Coming back to cars, an increase in their ownership rate as we go along will depend on how the income growth of Indian households compares with changes in car prices and other household expenses. 

The rate at which car ownership increases in India has implications for traffic congestion in cities and the adequacy of road infrastructure. We should keep track of these trends.