What the media did not tell you about the economy this month

Dec 17, 2015

28

An old adage in journalism goes: "if it bleeds, it leads". But this doesn't seem to apply to bad economic news. Allow me to elaborate. Let's start with new car sales. New car sales are a reliable economic indicator which tell you whether the economy is starting to pick up. People buy a car only when they feel certain about their job prospects. Further, once car sales pick up, sale of steel, tyres, auto-components, glass etc., also starts to pick up. New car sales have a multiplier effect and hence, are a good indicator of economic growth. At least that's how one would look at things theoretically.

The jump in the new car sales numbers was on the front page of the Mumbai edition of the leading pink paper where it was reported that sales saw a double digit growth in November 2015. Car sales in November 2015 went by 11.4% to 2,36,664 units, in comparison to November 2014. That is indeed a good jump and does indicate at some level that the consumer sentiment is improving.

But we need to take into account the fact that Diwali this time was in November and that always pushes up car sales. The December 2015 new car sales number will be a proper indicator of whether car sales have actually recovered or not.

Now contrast this with merchandise exports (goods exports) which fell by 24.4% to $20 billion in November 2015, in comparison to the same period last year. Over and above this, the exports have been falling for the last twelve months. This piece of news was buried in the inside pages of the Mumbai edition of the leading pink paper. Exports are a very important economic indicator. Countries which have driven their masses out of poverty have done so by having a vibrant export sector.

Getting back to car sales. It is important to ask how important car sales are in the Indian context. As per the 2011 Census, 4.7% of the households owned cars in India. At the same time 21% of households owned two-wheelers (scooters, motorcycles and mopeds (yes, they still get made and sold).


Advertisement
  Equitymaster Conference 2016  
23rd January. Mumbai, India
   
  It gives us great pleasure in extending you an invitation to join us at the Equitymaster Conference 2016. This is going to be one of our most important Conferences ever! And I strongly recommend you attend it.

At the Equitymaster Conference, our best ever line up of speakers, starting with Ajit Dayal (Founder, Equitymaster) and Bill Bonner (Founder, Agora Inc.) will aim to address all your questions about the current investment environment, thereby help you in planning your next steps. Including...

»  Where are the stock markets headed?
»  What should be your investment strategy for Indian stocks?
»  Is it finally time to get bullish on real estate?
»  Is the Gold story over?
»  What's next for India's economy, and the Indian Rupee?

Plus, at the Conference you will get an opportunity to rub shoulders with not just our speakers, but also like-minded investors from across India (Last year we welcomed guests from 33 cities, and 3 countries).

So if you are serious about your investments, The Equitymaster Conference 2016 is something you cannot afford to miss. More details about the Conference and our speaker line up are available here.

We suggest you move very fast on this invitation.

Reserve your seat under our 'Early Bird' opportunity!
 

This tells us very clearly that two-wheeler sales are a better economic indicator in the Indian context than car sales. Many more people own two-wheelers than cars. Further, many more people are likely to buy two wheelers than cars given the fact that two-wheelers are more affordable.

And how are two-wheeler sales doing? Not too well. Two wheeler sales in the month of November 2015 went up just 1.47% to 13,20,561 units, in comparison to November 2014. The motorcycle sales went up by 1.57% to 8,66,705 units. Scooter sales went up by 2.45% to 3,96,024 units. And moped sales fell by 6.16% to 57,832 units.

In fact, the increase in two-wheeler sales in November 2015 in comparison to November 2014 stood at just 19,130 units. Whereas the increase in car sales was at 24,226 units. The increase in car sales was greater than two wheeler sales. And this is indeed very surprising, given that total two wheeler sales in November 2015, were 5.6 times the car sales.

You won't find this very important point having been made in the pink papers. What does this tell us? It tells us that a large part of India is still not comfortable making what is for them an expensive purchase. It also tells us that the consumer demand at the level of the upper middle class (for the lack of a better term), which can afford to buy a car, is much better than it is for others.

The question is why is did the business media miss out on this? A possible explanation is that most of the business media these days is run out of Delhi. And in Delhi everyone owns a car, at least that's the impression you are likely to get if you work in the media in Delhi. So car sales are important, two wheeler sales are not. But that is really not the case even in Delhi.

As TN Ninan writes in The Turn of the Tortoise-The Challenge and Promise of India's Future: "In Delhi, according to data collected for the 2011 Census, 20.7 per cent owned cars and 38.9 per cent owned two-wheelers...In a conscious middle-class entity like Gurgaon, neighbouring Delhi...the credit rating agency CRISIL assessed that 30 per cent of households owned cars [and] 38.9 per cent owned two-wheelers."

Long story short-two wheeler sales are a better economic indicator than car sales. What this also tells us is that any piece of positive news will be played up and highlighted on the front page whereas any piece of negative news will be buried in the inside pages. Why does this happen? Why did the media almost bury the news of very low growth in two-wheeler sales?

Satyajit Das has an explanation for this in his terrific new book The Age of Stagnation-Why Perpetual Growth is Unattainable and the Global Economy is in Peril: "Bad news is bad for business. The media and commentariat, for the most part, accentuate the positive. Facts, they argue, are too depressing. The priority is to maintain the appearance of normality, to engender confidence."

Also, given that a business newspaper (or for that matter any newspaper) makes money from advertisements and not the price the buyers pay to buy a newspaper, this isn't surprising. Of course, you dear reader, need not worry, as long as you keep reading The Daily Reckoning.

Disclosure: Satyajit Das wrote the foreword to my book Easy Money: Evolution of Money from Robinson Crusoe to the First World War

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek 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. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Get 'India's Big Government' at Just Rs 199 Now October 18, 2017
Vivek's latest book is now available at a rare discount. Grab a copy now.
Our Plan to Save the Ranch October 18, 2017
How to increase fertility in the kingdom of cows.
Nobody Honks in Bali - Lessons for Indian Tourism October 17, 2017
Things India can learn to promote tourism from this small island.
We Rode Out... Unarmed October 17, 2017
Money is the tape measure for the carpenter economy.

Equitymaster requests your view! Post a comment on "What the media did not tell you about the economy this month". Click here!

4 Responses to "What the media did not tell you about the economy this month"

Ramesh Malpure

Dec 18, 2015

Please Send

Like 

Pankaj Varma

Dec 17, 2015

Car sales in India usually have an inverse relationship with the economy. Businessmen, when they are hesitant to invest more in their business or where the business is not doing very well, becomes cash surplus. Businessmen and their families are often on a spending spree when they have surplus cash and that is why car sales and property sales usually go up when the economy is not doing well and the investment climate is not OK. In this case since the property market is in a slump, a larger portion of the surplus cash has found its way in the car market.

Like 

Picha P K

Dec 17, 2015

With utmost humility fortified with ignorance of matters economic /politics and the imponderables of the machinations of the media( in general and those of the Indian varieties in particular) I wish to observe as under:
I had read some decades ago from a book authored by an eminent American author (a former US Ambassador to India) John Kenneth Galbraith who had made a very visionary statement thus :
‘ IF THE AUTO INDUSTRY IS HEALTHY, America is healthy !! “
Your article , i am glad to observe also echoes( PARTIALLY) the same sentiment somewhat !
Another eloquent yet true fact as brought out in the article is about the Media !
{The media is acting like the weathercock found on top of the meterological observatories
which changes its facial direction in synchronisation with the direction of the blowing wind(?) } More or less a case of selective amnesia or selective deafness (?)
I had also read years ago that the powerful Politicians are not afraid of even the Almighty but they are mortally afraid of only one entity !!
Yes !! you would have guessed it right ! They are mortally (BOTH LITERALLY AND FACTUALLY)
afraid of “THE MEDIA :: the Ominipotent/ Omniscient MEDIA !
I CONCLUDE !

Like 

shrikant durge

Dec 17, 2015

With advent of Ola and Uber and all that kind of call taxi services and even black &yellow drivers going professional by keeping cell phones and phone no's of client I feel car sales will dwindel only.The increase in car sale can be attributed to the unemployed getting it funded by various banks/nbfc's and buying cars and registering for all the above call taxi services.Not much to read into it i feel and still revival a long way to go.But govt projects starting and surprisingly when everyone looses hope suddenly a bunch of approvals happening.Regards

Like 
  
Equitymaster requests your view! Post a comment on "What the media did not tell you about the economy this month". Click here!