Conventionally, automobile industry performance is widely
accepted as a lead indicator of the overall economic performance of any
economy. No wonders if the recent slowdown in automobile demand is being
represented as a mark of the slowdown in overall economic activity.
However, the reactions from policy makers - ministers, MPs,
senior advisers & bureaucrats, etc - are perplexing.
They have mostly sought to trivialize the issue of slowdown
either by outright rejection or some lame explanation. The suggestion of the
finance minister that use of app based taxis may be a key reason for slowdown
in demand of automobile has been criticized widely on social media as a
completely illogical. These unmindful assertions from the official side have
raised doubts over the policy makers' understanding of the current state of
Indian economy. These doubts may impact the already faltering business and
consumer sentiments.
In this context it is important to note that—
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(a) The GDP growth rate in India peaked at 9.6% in FY07. Since then, the popular target growth rate of 8% has been achieved only twice inFY11 and FY17.
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(b) The monthly growth rate in sales of automobiles in India had peaked in 2010 at around 60% yoy. Since then it has ranged between -10% to 20% with a declining tendency.
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(c) The automobile sales growth had peaked around the same time when the credit growth peaked in India.
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(d) The share of private consumption in India's GDP consistently declined since 2000, from a peak of 70% to below 60%. Since 2012, it has mostly ranged between 57-60% of GDP.
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(e) The fall in private consumption has distinctly coincided with the rise in household debt that has risen consistently from 2% of GDP in 1998 to over 10% of GDP in 2019.
(f) In past 25yrs, since
1995, India’s economy has grown at an average rate of 6.8%. However, the total
employment in economy during this period has grown at just 0.3% CAGR. Moreover,
the real wages have grown at significantly lower rate than the economic growth.
The anecdotal evidence suggests that the real wages in private sector may be
mostly stagnant for past 3 years. The affordability quotient of household is
obviously lower.
(g) Post GST
implementation, the operating efficiency of truck fleet has reportedly improved
materially. Some unconfirmed reports have suggested that pre GST a truck took
10-12 days to make Chennai to Mumbai round trip. With implementation of GST and
removal of check posts on state borders, the same round trip takes 4-5. So a
lorry that was making two trips up & down in a month is now making 6 trips.
The demand for trucks is obviously impacted. Improvement in railways is also
reflecting on CV demand. The full operationalization of dedicated freight
corridors will further impact the CV demand.
Restrictions on mining, slowdown in demand from housing
construction sector, slowdown in imports, and delay in purchase decisions due
to BS6 implementation schedule, etc also
reflect on slowdown in CV sales.
(h) Moreover, the slowdown
in auto sales is not a India specific phenomenon. Its more of a global trend.
As per a Forbes report-
"The world car market is about to take its biggest hit
since the financial crisis of 2008, according to a report from Germany’s Center
for Automotive Research (CAR), with sales diving more than 4 million in 2019.
The fall, triggered by U.S. sanctions policy and led by a huge
fall in China’s sales, will extend over four years and be exacerbated by
harsher CO2 regulations and the challenges this implies from the enforced take
up of electric vehicles in Europe.
The forecast, authored by CAR’s director Professor Ferdinand
Dudenhoeffer, doesn’t include the impact from a possible crisis when Britain
leaves the European Union (EU), or if the U.S. imposes tariffs on European
vehicle imports.
Dudenhoeffer said world sales in 2019 will fall to 79.5 million
from 83.7 million last year, and won’t recover to 2018’s levels until 2022 when
sales will rise back to 84 million." (see
here)
Ola and Uber are obviously the last things to impact the demand
of personal vehicles. It may be worthwhile to note that only 30-35% of India is
urbanized and Ola & Uber so far address about 30% of this urbanized India.
Shortage of parking space in cities and spread of Metro network
might impact the growth of automobile sales more than Ola and Uber.
