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Four Economic Indicators Show Economy Has Slowed Down Further Since January 2019
12 MARCH 2019

Vivek Kaul

The economic growth during the period October to December 2018 fell to 6.55%, the slowest in six quarters. In fact, four high frequency economic indicators show that economic growth may have slowed down even further since January 2019.

The four high frequency economic indicators are: 1) growth in car sales 2) growth in two-wheeler sales 3) growth in tractor sales and 4) growth in commercial vehicle sales. These indicators basically represent different sections of the economy.

The interesting thing is that in February 2019, for the first time in four years, all the four economic indicators were in negative territory. This basically means that car sales, two-wheeler sales, tractor sales and commercial vehicles sales, all fell in comparison to the same period in 2018.

And this is a reason to worry.

Take a look at Figure 1, which basically plots the monthly growth (and even the lack of it) in car sales, over the last two years.

Figure 1: Car Sales Growth is Negative

As Figure 1 shows, domestic car sales have been falling over the last four months. This is clearly not good news.

The question is what does this indicate? Car sales are a very important economic indicator about how urban India feels about its economic prospects. After all, no one is forcing anyone to buy a car and given that if a consumer buys a car, he chooses to make a down payment and/or take on an EMI. This is only possible if the consumer is feeling positive about his future economic prospects.

In this situation he is willing to run down his savings to buy a car. At the same time, he feels that his income in the days to come will be enough to help him pay the EMI on the car loan. Given that car sales have been falling over the last few months, it tells us that urban Indian consumers are not feeling too kicked about their future economic prospects.

Car sales also have very strong forward and backward linkages. When cars sell well, there is greater demand for steel, rubber, paint, glass, batteries etc. These are the backward linkages. A whole host of sectors do well, when cars sell well. The vice versa is also true.

As far as forward linkages of car sales are concerned, a growth in car sales leads to an increase demand for loans, servicing centres as well as energy consumption. With car sales falling, all these sectors are bound to be negatively impacted in some way.

Given that many Indians cannot afford to buy a car, looking at just car sales is not enough. We need to look at two-wheeler sales as well, to get a better idea about what are Indians thinking about their future economic prospects. Hence, let's take a look at two-wheeler sales growth over the last two years, in Figure 2.

Figure 2: A Bad Start to 2019 for 2-Wheelers

Overall two-wheeler sales have been negative for the last three months, with scooter sales falling 12.14% in February 2019. Scooters are bought more in urban India. This is another good indicator of urban India not feeling great about its future economic prospects.

Motorcycle sales fell 0.58% in February 2019. This basically means that the part of rural India that can afford to buy motorcycles is also feeling the heat.

Now let's take a look at domestic tractor sales growth in Figure 3, which is another good indicator about how rural India is thinking about its economic prospects.

Figure 3: Rural Distress Reflected in Tractor Sales

The domestic tractor sales growth has been falling over the last few months. In fact, in February 2019, domestic tractor sales fell 0.52%. The growth in agriculture, forestry and fishing, between October and December 2018, stood at 2.67%, the slowest in 11 quarters.

This is again a sign of the agricultural distress that prevails in the country. The tractor sales have also started to reflect that stress.

Now let's take a look at the growth in commercial vehicle sales in Figure 4.

Figure 4: Sales of Commercial Vehicles Have Been Falling

A fast growth in commercial vehicles sales indicates a robust activity on the infrastructure and industrial front. This is seen as a lead economic indicator of industrial as well as infrastructure activity.

But the growth in commercial vehicle sales has been collapsing for the last one year. In February 2019, commercial vehicles sales fell by 0.58%.

This is also borne out by data from Centre for Monitoring Indian Economy. During October to December 2018, the new projects fell by 24.14%. Completed projects fell by 8.35% and the stalled projects went up by 246.89%.

All these economic indicators are basically evidence of the fact that the Indian economy has slowed down further since January 2019.

Of course, whether this reflects in the gross domestic product (GDP) growth, only time will tell, given that Indian GDP numbers these days are more about what the government wants them to be than what they really ought to be.


Vivek Kaul
Vivek Kaul
Editor, Vivek Kaul Publishing

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