The weeds of India’s economic slowdown have been growing pretty rapidly over the past 12 months. There have been various stories in news of varying levels of concerns over the systematic reduction in growth of different sectors and commodities. Probably the earliest indicator was the lack of job creation across the country, and this concern got a major boost thanks to the elections with every opposition party highlighting this. I did a simple Google Trends search on the term ‘jobs crisis’ and it has been searched pretty consistently over the last year. However, given the current state of our media, apart from the opposition’s concern leading up to the elections, the unemployed haven’t found solidarity from anyone since then.
This gets me to the other end of the spectrum of attention, the slowdown in the auto sector. Again, looking at the Google Trends data, the term ‘auto sector crisis’ really started being searched from July 2019, peaking in late August and September at the time of writing this post. While any sector that is facing tough times deserves air time and attention (especially one which is facing its worst crisis in 19 years), this still is a fly in the ointment for me. India is largely a poor country with over 21% living below the national poverty line in 2011 – this is approximately 280 million people (that is over 10 times Australia’s population). The GDP per capita in India is about INR 182,500, which is a pretty misleading statistic for a country which has the number of poor people India does. Is there a more relevant measure we can look at?
Every year, Credit Suisse publishes a Global Wealth Report which analyses the household wealth of 5 billion people across the globe. I do believe wealth is a much more important metric to look at as opposed to income. For a simple comparison, wealth is the net worth of a person, which takes a large amount of time to acquire, while income is amount earned by a person for a transaction and is often immediate. When one looks at a sizeable investment in an asset like a car or a house, wealth I believe is a better measure than income. As per the 2018 Global Wealth Report, the mean wealth per adult in India is $7,024 which is approximately INR 512,752. However, this again is misleading. India has an adult population of about 850 million, and as per the report, 90.8% of the adult population has wealth below $10,000 or INR 730,000 and we still have managed to rank sixth in the world for the number of people with wealth above $50 million. Given this kind of absurd gap in wealth, median wealth would be a much better indicator than mean. As per the report, the median wealth per adult in India is $1,289 or INR 94,097. To simplify, there are approximately 425 million adults with wealth less than INR 94,097. The average Indian cannot even think of affording a car (also read this, maybe another post to discuss it later). With this in mind, should slowdown in auto sales be the concern that needs to be given so much attention to?
I do understand that the auto sector generates a lot of employment in India and propping it up would also help us boost availability of jobs. I also understand that they are large borrowers, and those defaulting would hit our already limping lending sector with a blow so hard it might be difficult for the lenders to recover. However, the jobs crisis and the lending crisis preceded the auto crisis, so the latter is not the cause of the former. In fact, this is exactly why the auto sector should have seen this slowdown coming given all the indicators, and gradually reduced their production avoiding the excess inventory problem. Now they stand in line with others in front of the GST Panel demanding a tax cut. The government meanwhile even announced a policy to replace existing government cars with new ones just to clear the auto companies’ inventories. I am not even going to mention their months of ranting over the BS VI norms and impending electric vehicle boom which is still years away for India. I do not understand why we can’t just allow them to fail, that should be the cost of doing any business, after all isn’t that what we do to small businesses when we allow more FDI in any sector?
Going back to the search trends, it is interesting to compare the two above mentioned search terms, which you can see here. As is visible, the peak for auto sector crisis is higher than that of the jobs crisis, which is what is irksome. I do understand this is a very crude way of looking at media coverage or public awareness, but I do believe it can be used as a rough trend to understand where our priorities lie generally. In this case, the backing the auto sector has received for its slowdown is much higher than that received by the unemployed millions in the country. That, I believe, is our biggest crisis.