What Vehicle Sales Tell Us About Notebandi

car

A few days back I got an email from a reader. This email essentially said that the world had moved on from demonetisation/notebandi and it was time that I did as well.

Well, people do get bored. So, does the media.

And in the process, they stop following issues that they did once. As fatigue sets in, this essentially leads to a situation that issues do not get followed to their logical conclusion.

It’s like a daily soap opera which keeps undergoing multiple changes in plots, depending on what the viewers want. Or rather depending on what the managers running the show think the viewers want.

The trouble is that my writing is not like that. Also, now we have some data points to properly analyse notebandi and its impact on the Indian economy.

And it would be rather stupid of me to stop writing on the issue right now. Hence, my writing on notebandi is likely to continue in the months to come and who knows, possibly even years.

So, dear reader, that was that. Let’s now cut to today’s edition of the Diary.

Take a look at Figure 1. It shows the two-wheeler sales over the last five months.

Figure 1: 

Figure 1 clearly shows that there has been a downward trend in two-wheeler sales since September 2016. Notebandi only accentuated this trend. Having said that there has been some recovery in sales in January 2017.

Two-wheeler sales are a very important data point. They show the spending potential of many Indians. They also have a very high correlation with India’s informal economy, which doesn’t get captured very well in the gross domestic product(GDP) numbers.

As Ritika Mankar Mukherjee and Sumit Shekhar of Ambit Capital write in a recent research note: “History suggests that there exists a strong correlation between the nominal GDP generated by the informal sector and… two-wheeler sales data.” And given that two-wheeler sales have shown a largely downward trend lately, what can be said? As Mukherjee and Shekhar point out: “The latest data… shows a marked deterioration underway in the informal sector of the economy.”

As mentioned earlier, the informal sector is not captured well enough in the GDP numbers. As the Economic Survey of 2016-2017 points out: “It is clear that recorded GDP growth in the second half of FY2017 [October 2016 to March 2017] will understate the overall impact because the most affected parts of the economy-informal and cash based-are either not captured in the national income accounts or to the extent they are, their measurement is based on formal sector indicators. For example, informal manufacturing is proxied by the Index of Industrial Production, which includes mostly large establishments. So, on the production or supply side, the effect on economic activity will be underestimated.”

Given this, data points like two-wheeler sales become very important in gauging the real impact of notebandi on the Indian economy. Let’s see how the data for the remaining two months (February and March 2017) comes out. But from four months of data that is available for the second half of this financial year, it can safely be said that things aren’t looking good on this front. And this should be a huge reason to worry. As per Mukherjee and Shekhar, “The informal sector accounts for ~40% of India’s GDP and employs close to ~75% of the Indian labour force.”

Now let’s look at domestic passenger car sales between September 2016 and January 2017. Take a look at Figure 2.

Figure 2:As Figure 2 shows, the domestic passenger car sales have recovered much more quickly than two-wheeler sales, in the aftermath of demonetisation. The January sales were only 4.5 per cent lower than the September sales. In case of two-wheelers, the January sales were still 30.6 per cent lower than the September sales.

What does this tell us? It tells us very clearly that rural India was impacted much more by demonetisation. It tells us that the not so well off have been more impacted much more by demonetisation than the well off. As writer Amit Varma put it in a recent speech: “In all this, the rich got away… You see a reflection of this in automobile sales. They have plummeted for two-wheelers and three-wheelers, but SUV sales are steady. The rich got away.”

And that is something worth thinking about.

The column was originally published on Equitymaster on February 20, 2017

Advertisements

About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

2 Responses to What Vehicle Sales Tell Us About Notebandi

  1. Rahul says:

    Hey Vivek,

    Big fan of your writings here 🙂

    Not all the decline in December sales can be attributed to demonetization though. For some strange reason, cars resale values are tied to year-model thing so if you purchase in a car on 31st December 2014, you’ve got a 2014 model while if you delay the purchase by a day, you have a 2015 one. This is one reason why a lot of Indians delay purchase of their cars at the fag end of the year (and this is exactly why car companies shower them with year end deals).

    An interesting thing to do would be compare this curve with the sales curve of previous years. If the curve is steeper, demonetization definitely has something to do with the delta.

    Cheers
    Rahul

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: