BackOpinion | A dismal start to the fiscal year
Two important pieces of data—car sales and manufacturing PMI—suggest the economy is finding it hard to gather pace
PremiumThe latest indicators on India’s economy aren’t sending out positive signals at the start of the fiscal year. Two important pieces of data—car sales and manufacturing PMI—suggest the economy is finding it hard to gather pace. Take car offtake first: Sales of Maruti in April fell 20% from the same month a year earlier. That alone would have been worrisome because Maruti sells every second car that hits Indian streets. But the problems go far beyond this company. Almost all car makers—including Tata, Hyundai, Toyota and Ford—have reported a double-digit decline in sales last month. That is ominous, given that the automobile sector is the biggest contributor to India’s manufacturing sector. Take the manufacturing PMI reading next: This figure fell to an eight-month low of 51.8 in April. The finance ministry, in a report prepared by its department of economic affairs, seems to acknowledge a slight slowdown in March.
High interest rates for car loans, increased upfront insurance costs and rising fuel prices are partly to blame for the Indian automobile industry’s woes. Some of these factors, such as high borrowing costs, have also made life difficult for businesses in other sectors, which may be looking to set up new factories or expand operations in new regions, but are finding it too costly to fund those plans.
But a bigger problem is the uncertainty caused by the ongoing national elections. Businesses are unsure who will form the next government, which is crucial to the economic future of India. Many believe that a fractured mandate, for instance, could lead to a coalition government that may find it difficult to push through essential but politically unpopular reforms, such as easing land acquisition and labour laws. As many economists have argued, India’s jobs crisis can only be solved if private investment—still in a deep slump—picks up and labour regains its cost competitiveness vis-a-vis capital employed for production. Until policy clarity emerges, it is hard for businesses to take investment decisions. The next government, however, won’t be formed until around the end of this month, and it may be some more time before it puts in place new policies. For the sake of the economy, let’s hope no time is wasted.
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