4 Ways to Explain Economy Slowdown in India

Consumption is the most important part of the Indian economy, given that it forms around three-fifths of the Indian economy. And any slowdown here is bound to affect the overall economy. Except for perhaps retail loans given by banks, there is a contraction in all other parameters which measure consumption in different ways.

Domestic car sales:

During April to June 2019, car sales fell by 23.3% in comparison to the same period in 2018. This is the biggest contraction in quarterly sales since 2004 (that’s how far back the quarterly data in the Centre for Monitoring Indian Economy database goes). A slowdown in car sales negatively impacts everyone from tyre manufacturers to steel manufacturers to steering manufacturers etc., when it comes to the backward linkages that car manufacturers have. As far as forward linkages are concerned, many auto dealerships are shutting down or shrinking. At the same time, the vehicle loans growth has slowed down to 5.1%, the slowest it has been in five years.

Two-wheeler sales:

These have not been as badly hit as car sales. Between April and June 2019, two-wheeler sales contracted by 11.7%. This is the biggest fall since October to December 2008, when two-wheeler sales had contracted by 14.8%, in the aftermath of the start of the financial crisis. In fact, even mopeds are not selling, with their sales down 19.9% between April and June 2019 (In 2018–2019, a total of 880,000 mopeds were sold, suggesting there is still good demand for them).

Tractor sales:

A good indicator of rural demand, tractor sales during April to June 2019, fell by 14.1%, the highest fall in nearly four years.

Housing sales:

As per Liases Foras, a real estate research company, India’s top 30 cities had 1.28 million unsold housing units as of March 2019, a jump of 7% from March 2018, when the number was at 1.2 million. This means that builders are building new houses at a faster pace than people are buying them. The real estate sector has forward and backward linkages with 250 ancillary industries. So, when the real estate sector does well, many other sectors, right from steel and cement to furnishings, paints, etc., do well too. This is something which isn’t happening currently. The fact that real estate prices haven’t gone up in years makes people feel less wealthy and as a result, spend less.

Bank retail loans:

This data point goes against the trend. During April to June 2019, the retail loans of banks grew by 16.6% in comparison to the same period last year. During the same period last year, they had grown by 17.9%. There has been a marginal fall in growth. Housing loans form more than half of the retail loans — they grew by 18.9% during the quarter against 15.8% last year.