India might grow by 30% early next year, but that won’t mean much.

छोड़ो कल की बातें, कल की बात पुरानी
नए दौर में लिखेंगे, मिल कर नई कहानी
हम हिंदुस्तानी, हम हिंदुस्तानी
— Prem Dhawan, Usha Khanna, Mukesh and Ram Mukherjee in Hum Hindustani. 

The Indian economy contracted by 7.5% during July to September 2020, in comparison with the same period in 2019.  When compared with a contraction of 23.9% during April to June 2020, a contraction of 7.5% looks significantly better.

Hence, there has been a lot of song and dance from the establishment and its supporters, on how quickly the Indian economy is recovering, especially when most economists expected the economy to contract by 10% during July to September and it contracted by only 7.5%. Terms like a V-shaped recovery have been bandied around a lot, over the last few weeks.

Nonetheless, India continues to remain in the bottom quartile, when it comes to economic growth/contraction of countries between July to September this year. Greece with an economic contraction of 11.7% is right at the bottom.

In fact, the song and dance of the establishment is likely to continue in the months to come and will reach its peak sometime in the second half of the next year, after the gross domestic product (GDP) figure for the period April to June 2021, is published. GDP is a measure of the economic size of a country.

It is worth remembering here that the GDP during the period April to June 2020 contracted by nearly a fourth. The GDP during the period was Rs 26.90 lakh crore. In comparison, the GDP during April to June 2019 was at Rs 35.35 lakh crore.

So, the GDP during April to June 2021, will grow at a pace which has never been seen before. If it comes in at Rs 30 lakh crore, the growth will be around 11.5%. Given that, the GDP during the period July to September 2020 was already at Rs 33.14 lakh crore, the GDP during April to June 2021, is likely to be higher than that.

At a GDP of Rs 35 lakh crore, the economic growth during April to June 2021 will come in at a whopping 30.1%. Nevertheless, this is just an impact of what economists like to call the low-base effect.

A central government which can use a contraction of 7.5% to market itself, imagine the possibilities of what it can do if the economic growth rate crosses 30% in the first quarter of the next financial year.

While, some song and dance can do no harm to the economy, the real story needs to be understood and told as well. The real GDP in April to June 2021 will be more or less where it was during April to June 2019. In that sense, we will be where we were two years back.

Hence, the economic slowdown which started in mid 2018, along with the contraction that has happened post the spread of the corona epidemic, has pushed the Indian economy back by at least two years. Obviously, this can’t be good news.

Other than talking, the central government hasn’t done much to get the Indian economy going. Between April and October 2020, the government spent a total of Rs 16.61 lakh crore. In comparison, it had spent Rs 16.55 lakh crore during the same period in 2019. The difference being, this year we are in the midst of an economic contraction.

In a scenario where the corporates as well as individuals are going slow on spending money, government spending becomes of utmost importance. Between March 27 and November 20, the non-food credit of banks has gone up just Rs 26,496 crore.

Banks give loans to the Food Corporation of India and other state procurement agencies to buy rice and wheat, directly from the farmers. Once these loans are subtracted from the overall lending of banks what remains is non-food credit.

In comparison, the deposits of banks have gone up by Rs 8.03 lakh crore during the same period. This means just 3.3% of the fresh deposits that banks have got post March have been lent out.

What does this tell us? It tells us that both corporates and individuals are largely sitting tight and saving money. This is an indication of the lack of confidence in the near economic future. While the corporate executives might keep going gaga in the media about an economic revival, these numbers tell us a different story.

What hasn’t helped is the fact corporates have reported bumper profits by driving down their raw material costs, input costs and employee costs. This basically means that along with employees, the suppliers of corporates have also seen an income contraction. This can’t be good news for the overall economy.

The government’s inability to spend, comes from the lack of tax revenues, something that is bound to improve in 2021-22. Other than that, the government hasn’t gotten around to selling its stakes in public sector enterprises. Of the targeted Rs 2.1 lakh crore just 3% has been achieved. This is bizarre given that the stock market is at an all-time high-level.

Hopefully, the government will make up on this in the next financial year. Also, it can look at selling some of the land that it owns in prime localities in Indian cities.

All this can be used to put more money in the hands of consumers through an income tax cut and a goods and services tax cut, encouraging them to spend.

People who pay income tax may form a small part of the population but they are the ones who actually have some purchasing power. And once they start spending more, the chances of it boiling down the hierarchy are higher. Do remember, at the end of the day, one man’s spending is another man’s income.

A slightly different version of this piece appeared in the Deccan Herald on December 20, 2020.

10 Things Women Can Do to Manage Personal Finances Better in 2021

Aage aage wo chale peeche saari duniya
din na dekhe raat na dekhe peeche padi hai duniya
aur nahi koi aur nahi wo to hai rupaiya
gol gol chaand sa rupaiya
kaisa hai ye khwab sa rupaiya

— Visheshwar Sharma, Kalyanji Anandji, Kishore Kumar and Surendra Mohan, in Hiraasat.

Okay, the headline was clickbait.

But now that I have your attention I have a few important things to share. I make a living by writing regularly on economics and finance. But this isn’t how it always was.

For my first couple of years in journalism, I largely wrote on personal finance topics. It took me a couple of years to figure out that between the product sellers and the personal finance writers, the subject was made needlessly complicated.

The trick wasn’t to try and understand every new product/idea that hit the market, which is what personal finance pages in newspapers and personal finance websites and magazines cater to, because they need to fill up space, so that they can gather advertisements against that space. Of course, personal finance writers need to keep writing about newer things and same things in newer ways, to keep their jobs.

When it comes to companies selling personal finance products, they are largely in the business of raising money and not necessarily managing it well

Hence, what is more important is to understand the broader principles of the subject and then stick to them over a period of time.

In the last fifteen years I have ended up advising more women on personal finance issues than men. In my limited experience, women seem to be more interested in understanding the nuances, the men typically play know it all when it comes to personal finance.

In this piece, I will elaborate on principles I think every woman should follow when it comes to managing her money and personal finances. (In fact, most of these principles can be followed by men as well, but then they know it already).

If you aren’t following these principles, 2021 is just about here and now is as good a time to start as any.

Here we go:

1) Save for the sake of saving. This is a very simple principle but many women I have come across, just don’t get it. They want to save for their next holiday, the next diamond ring, the next home, the next car, the children who aren’t there yet, the next whatever

In fact, Morgan Housel makes this point beautifully in his recent book The Psychology of Money: “Only saving for a specific goal makes sense in a predictable world. But ours isn’t. Saving is a hedge against life’s inevitable ability to surprise the hell out of you at the worst possible moment.”

Like when the covid pandemic hit India in late March, people who had saved money for the sake of saving and had money in the bank account, were able to handle the situation in a much better way. If you lost your job and had money in the bank account you didn’t have to take on the first new job that came along. You could wait for something better.

As Housel puts it: “Savings without a spending goal gives you options and flexibility, the ability to wait and the opportunity to pounce. It gives you time to think. It lets you change course on your own terms.”

Further, if you save for the sake of saving and have money in the bank, you will be able to make the decisions, right or wrong, you want to make in life, and which might even mean not being pressurised by your family to get married to the next guy they discover on

If this isn’t important I don’t know what is. Hence, being financially independent is very very important and that can only happen if you save for the sake of saving.

In fact, as Housel puts it:

“We can leave aside rich, but independence has always been my personal financial goal. Chasing the highest returns or leveraging my assets to live the most luxurious life has little interest to me. Both look like games people do to impress their friends, and both have hidden risks. I mostly just want to wake up every day knowing my family and I can do whatever we want to do on our own terms. Every financial decision we make revolves around that goal.”


This should be the ultimate goal of saving and money in the bank account should not be a signalling effect for the society at large.

2) If you work for a company, be aware of how your salary is structured. Too many companies use the cost to company (CTC) approach to take their employees for a ride. If you don’t understand the items that make up your salary, ask around, Google, do whatever is needed to understand them. I come across way too many women who work very hard on their job, but have no idea of their salary structure (This is not to even remotely suggest that men have it all figured out). If you have ESOPs as a part of your CTC, know when they will vest and when you can sell them. The same when it comes to the soft loans that you can take from the company. It’s slightly difficult to understand this, but it’s not rocket science.

3)  I think this is the most important point that I will make in this piece. Way too many women I know, leave the managing of their finances to their fathers (a horrible horrible idea because they will make you buy LIC policies), spouses (might end up taking too much risk than you prefer) or boyfriends (you might just breakup, who knows).

I mean if you work so hard to earn the money that you do, why not spend some time to figure out how to manage it well. As I said earlier, money in the bank, helps us make the decisions that we want to. If you can spend a week planning a ten-day holiday that you take during the course of a year, I am sure you can spend a few days understanding how to manage the money you work so hard to earn through the year.

4) This is a tricky point and hasn’t gone down too well with most women I have shared it with. Don’t have all your money in joint bank accounts with your spouse (works for the husbands as well). I am not remotely trying to suggest that if things don’t work out between you guys, he will cheat you on the money front (he may, but then who am I to suggest that). But untangling these things can be quite a pain.

So, it makes sense to have one joint account for the shared expenses, but beyond that have your money in your bank account. (Believe me, if things don’t work out, you are going to thank me forever for this).

5) This is another tricky point. If your father/husband/boyfriend/brother manages your money, be aware of where that money is parked. Be aware of the loans your husband has taken on. Again, I am saying this from experience. Many women just tend to be totally unaware on this front and then one day when the father dies, the husband leaves or the boyfriend breaks up, the reality of the situation suddenly hits them. Just getting a bank account shut after someone’s death can be a huge pain, if you are unaware of the details.

6) Many women don’t like the idea of managing their money because they think there is a lot of maths involved in it (Again, this is not to suggest that men understand the maths). It’s just basic fifth standard maths, which is not difficult to understand at all.

7) Make sure that you are making full use of the tax deductions available to you as a married couple. (Again, the husband may have no idea, doesn’t mean you also don’t).

8) Diamond jewellery looks great on you and please wear it by all means but don’t go about buying diamonds all the time. It’s a bad idea. Selling diamonds can be a difficult business in case of an emergency. (Don’t believe me, just Google).

9) If you are starting out and don’t know how to go about managing your money, just do a recurring deposit with a bank to start with. It won’t give you a great return but some money will start accumulating and some money is better than no money. Also, don’t buy an insurance policy unless your family is dependent on you or you have outstanding liabilities.

10) And finally, since we are about 2021, do remember that sometimes return of capital is more important than return on capital. 2021 will be that kind of year. Manage your money accordingly.

To conclude, these points go beyond doing the basic things, like investing regularly over a long period of time to ensure that you end up making decent returns and not necessarily the highest returns, not having all your investments in one asset class (diversification), buying a house to live in and thinking very carefully about buying another house, not over-leveraging yourself and not making any investment decisions which will keep you awake at night. Nothing is worth ruining a good night’s sleep.

China’s Population Control Model is an Outdated and a Bad Idea for India

Hum do hamare ho do,
paas aane se mat roko.
— Indeevar, Rajesh Roshan, Amit Kumar, Sadhana Sargam and Rajesh Roshan, in Jurm (1990).

 Here’s a scene from a middle class Indian drawing room of the late 1980s and early 1990s. Four men are sitting and chatting.

“You know what India’s biggest problem is?” asks the first.

“Our population,” replies the second.

“The government should do something to control it,” says the third.

“Indeed,” affirms the fourth.

Three decades and more later, whether similar conversations continue to happen in the middle class Indian drawing rooms, I have no idea, simply because I haven’t been in one for many years. But some Indians still think in a similar fashion, that is, India has a population problem and that the government should do something to control it, like the way China did. (Okay, we might want to boycott Chinese goods but we don’t have such inhibitions when it comes to their population control policy).

In fact, one such individual, even filed a public interest litigation with the Supreme Court and as reported in the Sunday edition (December 13, 2020) of The Times of India, pleaded that “to have good health; social, economic and political justice; liberty of thoughts, expression and belief, faith and worship; and equality of status and opportunity, a population control law, based on the model of China, is urgently required.” (Ironically, the above paragraph mixes the Preamble of the Indian Constitution with the Chinese population control law). 

This is precisely the kind of lazy thinking that prevails when one forms an opinion on something and continues holding on to it, without looking at the latest data. Let’s look at this issue pointwise, in order to understand that such thinking is totally wrong.

1) There is no denying that India has a large population and that creates its own set of problems, everything from lack of employment opportunities to lack of public infrastructure. But is population control the answer to that? No. Look at the following chart, which plots the total fertility rate of India.


The total fertility rate in 2018 stood at an all-time low of 2.222. This meant that on an average 1,000 Indian women have 2,222 babies during their child-bearing years. The chart has a downward slope, which means that the fertility rate has been falling over the years. This means on an average  Indian women have been bearing fewer children over the decades.

The replacement rate or the total fertility rate of women at which the population automatically replaces itself, from one generation to another, typically tends to be at 2.1. India’s fertility rate is almost at the replacement level.

As per the Sample Registration System Statistical (SRSS) Report for 2018, the total fertility rate in urban India was 1.7 and in rural India was at 2.4. Hence, urban India is already below the replacement rate.

2) The point being that the Indian population is increasing at a much slower pace than it was in the earlier decades. How has that happened?

As Hans Rosling, Ola Rosling and Anna Rosling Rönnlund write in Factfulness—Ten Reasons We’re Wrong About the World – And Why Things Are Better Than You Think:

“Parents in extreme poverty need many children… for child labour but also to have extra children in case some children die… Once parents see children survive, once the children are no longer needed for child labour, and once the women are educated and have information about and access to contraceptives, across cultures and religions both the men and the women instead start dreaming of having fewer, well-educated children.”

Hence, as the infant mortality rate falls due to a variety of reasons, from more women getting educated to a higher economic growth to urbanisation, the fertility rate comes down as well. Take a look at the following chart, which basically plots the infant mortality rate of India over a period of time. The infant mortality rate is defined as the number of children who die before turning one, per 1,000 live births.


The infant mortality rate has fallen from 161 in 1960 to 28.3 in 2019. As more children born have survived and grown into healthy adults, parents have had fewer children. That is one clear conclusion we can draw here.

As the Roslings write: “Every generation kept in extreme poverty will produce an even larger next generation. The only proven method for curbing population growth is to eradicate extreme poverty and give people better lives, including education and contraceptives.”

India’s adult female literacy rate (% of females aged 15 and above) had stood at 25.68% in 1981. It has since gradually improved and in 2018 had stood at 65.79%. As more women have learned to read and write, the infant mortality rate and the fertility rate have both come down.

As the SRSS Report points out:

“On an average, ‘Illiterate’ women have higher levels of age-specific fertility rates than the ‘Literate’. Within the ‘Literate’ group there is a general decline in the fertility rates with the increase in the educational status both in the rural and urban areas, barring a few exceptions.”

Also, faster economic growth post 1991 has helped in bringing down poverty levels and in turn led to a lower fertility rate as well.

In 1960, the total fertility rate was at 5.906. It fell to 4.045 by 1990. By 2018, it had fallen to 2.22. Clearly, the rate of fall has been faster post 1990.

3) Now let’s talk about the China model of population control, which led to one Ashwini Upadhyay petitioning the Supreme Court, pleading that India adopt such a law as well. But before we do that let’s look at the following chart which basically plots the total fertility rate in China over the years.


China’s coercive one-child population control policy was launched in 1979. At that point of time, the Chinese fertility rate was 2.745. The interesting thing is that it had been falling rapidly from 1965 onwards when it had peaked at 6.385.

As Mauro F. Guillén writes in 2030: How Today’s Biggest Trends Will Collide and Reshape the Future of Everything:

“Back in 1965, the fertility rate in urban China was about 6 children per woman. By 1979, when the one-child policy came into effect, it had already declined all the way down to about 1.3 children per woman, well below the replacement level of at least 2 children per woman. Meanwhile, in rural China, fertility hovered around 7 children per woman in the mid-1960s, a number that decreased to about 3 by 1979.”

The point being that in 1979 when Chinese leaders pushed through the one-child policy the fertility rate in urban China was already at 1.3, much lower than the replacement rate. In rural China it was at 3, greater than the replacement rate of 2.1, but it was falling at a very fast rate. Hence, the decision to push through the one-child policy was not a data backed decision but basically politics.

As Guillén writes:

“The policymakers were unaware of the reality that fertility in China had been dropping precipitously since the 1960s, with most of the decrease driven by the same factors as in other parts of the world: urbanization, women’s education and labour force participation, and the growing preference for giving children greater opportunities in life as opposed to having a large number of them.”

Clearly, Upadhyay like the Chinese  before him, did not look at the Indian data before filing the public interest litigation in the Supreme Court and thus wasting the time of the Court as well as that of the government.

4) One of the impacts of the coercive one child policy in China was that parents preferred to have boys than girls. As Guillén writes: “While it was the law, the one-child policy created a gender imbalance of about 20 percent more young men than women, driven by the cultural preference for boys.”

The male-female ratio went totally out of whack. In 1982 there were 108.5 male births per 100 female births. This went up to 118.6 per female births in 2005. It has since fallen to 111.9. This has led to an intensified competition in the marriage market, with many Chinese men being unable to find brides.

As per the Sample Registration System Statistical Report for 2018, India’s sex ratio at birth was 1,000 males to 899 females. This works out to around 111 males for 100 females. Of course, like the Chinese even Indian parents have a cultural preference for a male child, who they believe will take care of them in their old age and also ensure that their family continues.

Imagine the havoc any coercive population control policy could have caused or can still cause, to the sex ratio in India.

In lieu of this fact, it was nice to see that the Modi government responded in an absolutely correct way in the Supreme Court. The health and family welfare ministry told the Court: “India is unequivocally against coercion in family planning… In fact, international experience shows that any coercion to have a certain number of children is counter-productive and leads to demographic distortion.”

Clearly, the government doesn’t want to become a victim of the law of unintended consequence where it wants to do one thing and ends up creating other problems. Kudos to that.

5) The Health and Welfare Statistics of 2019-20 project that India’s total fertility rate will be 1.93 in 2021, which will be lower than the replacement rate of 2.1. It is expected to fall further to 1.80 by 2026-2030.

Of course, a fertility rate of close to the replacement rate doesn’t mean that all states have low fertility rates. Recently, the data for  the first phase of the fifth National Family Health Survey (NFHS-5) was released. This had data for 17 states and five union territories. Among the large states, Bihar was the only state which had a total fertility rate greater than the replacement rate. The total fertility rate of the state stood at 3. (The data for other laggard states like Uttar Pradesh, Rajasthan, Madhya Pradesh etc., wasn’t released in this phase).

A look at the data from Health and Welfare Statistics of 2019-20 tells us that the poorer states which have higher infant mortality rates also have higher fertility rates, most of the times. This evidence is in line with theory.

6) States with a lower fertility rate will not see an immediate fall in population. This is primarily because of the past high fertility rate because of which more people will enter or be a part of the reproductive age group of 15-49. This is referred to as the population momentum effect.

As C Rangarajan and J K Satia wrote in a column in The Indian Express in October: “For instance, the replacement fertility level was reached in Kerala around 1990, but its annual population growth rate was 0.7 per cent in 2018, nearly 30 years later.” Nevertheless, population growth has slowed down and will continue to slow down further.

The larger point here being a growing population is a very important part of economic growth (of course, this is a necessary condition for economic growth but not a sufficient one).

As Ruchir Sharma writes in The 10 Rules of Successful Nations: “Throughout, increases in population have accounted for roughly half of economic growth… The impact of population growth on the economy is very straightforward, and very large. If more workers are entering the labour force, they boost the economy’s potential to grow, while fewer will diminish that potential.”

Many Indian states with a fertility rate lower than 2.1 will start facing the situation where fewer people will enter their workforce, in the next couple of decades. This includes Southern and the Western states. It also includes states like West Bengal, Punjab, Himachal Pradesh and Jammu and Kashmir.

Clearly, these states will need workers from other states to keep filling the gap in their working age population (something which is already happening). Also, as workers from high fertility states move to work in low fertility states, they will see an increase in their incomes. This will have an impact on their own fertility rates, which will fall.

In this scenario, states trying to reserve jobs for locals, is a bad idea in the medium to long-term, though it might work in the short-term by being politically popular. Also, states with lower fertility rates on the whole have higher per-capita incomes. Given that, locals do not always want to take on the low-end jobs. And for that, people from other states need to come in and take on those jobs.

People who move from less developed states to more developed states in India are those who are low-skilled or semi-skilled, largely. Alternatively, they have very high-level skills.

One indirect effect of a rise in migrants in any given state is that migrants spend a part of the money they earn and this leads to the overall increase in demand for goods and services within that state. It also leads to the government earning more indirect taxes.

This works well for the overall economy and the population as a whole though it may not be perceived in that way by the local population. As Abhijit Banerjee and Esther Duflo write in Good Economics for Hard Times: “ Migrants complement, rather than compete with, native labour as they are willing to perform tasks that natives are unwilling to carry out.”

To conclude, India has largely done whatever it had to stabilise its population growth, without resorting to any coercive policies (except for a short-time during the emergency). So, population growth has been slowing down for a while now and will continue to slowdown in the decades to come. In this environment, it is important to learn the right lesson from this entire issue, which is that societal level changes take time but they do happen at the end of the day, if the government keeps working towards it.

Also, going forward, it is important that young workers are allowed to move freely from one part of the country to another in search of an occupation; from the poorer parts to the better off parts.

As Rutger Bregman writes in Utopia for Realists: The Case for a Universal Basic Income: “Opening up our borders, even just a crack, is by far the most powerful weapon we have in the global fight against poverty.”

Of course, Bregman is talking in the context of international migration, with people moving from poorer countries to richer ones. But there is no reason why the same logic can’t apply to moving within the country as well.

Postscript: I just hope the Supreme Court judges are looking at the right data while listening to the PIL.

The Curious Case of India’s Two Wheeler Sales or Why Nothing is the Way It Seems

Ik yaaron bullet bhi hua lakh da,
dooja yaaron mehanga petrol ho gaya.

— Harkirat Singh Matharoo, Desi Crew and Jassimran Singh Keer in Bullet. 

I have been following  the issue of domestic two-wheeler sales on a regular basis. Two wheelers basically comprise of motorcycles, scooters and mopeds (around 6.37 lakh mopeds were sold in 2019-20).

Domestic two wheeler sales are a very important economic indicator which give us a good indication of the purchasing capacity of middle class India. Hence, it is important that they are interpreted in the correct way.

The sad part is that the mainstream media in its quest to get advertisements from automobile companies isn’t really doing that.

For the last few months we have been told that two-wheeler sales have been going up in comparison to the same month in 2019.
Take the case for November 2020. Newsreports tell us that 1.6 million units of two-wheelers  were sold during the month and this was 13.4% more than the number of two-wheelers sold during November 2019.

Not for a moment I am suggesting the media is making this data up. They are simply reporting the numbers that the Society of Indian Automobile Manufacturers (SIAM) is providing them with. SIAM is basically the lobby representing major vehicle and vehicular engine manufacturers in India.

SIAM reports the number of units of two-wheelers leaving the gates of manufacturers or factory gate shipments. In simpler words, these are units which have been sold by manufacturers to dealers across the country, who in turn will sell to the end consumers. So, the SIAM data does not represent retail sales or the sales made to the end consumer. If we look at retail sales, the real situation is revealed and the picture that emerges is not so pretty.

Let’s take a look at this issue pointwise.

1) In November 2020, as per SIAM, 1.6 million units of two-wheelers were sold.  But what were the real sales like?

The Federation of Automobile Dealers Associations (FADA) reports the number of units of two wheelers registered at the Regional Transport Offices (RTOs) across the country after they have been sold to the end consumer. Hence, the sales number reported by FADA is a better representation of sales to end consumers. It uses the government’s Vahan 4 database to report these numbers.

How many units of two-wheelers were sold in November as per FADA? 1.41 million units. This is lower than the number reported by SIAM. In fact, the difference is at 1.87 lakh units. This is the lowest difference between the SIAM and FADA numbers over the months since May 2020, when the difference was around 1.21 lakh units.

2) Take a look at the following chart. It plots the two-wheeler sales over the course of the current financial year (i.e. 2020-21), as reported by SIAM and FADA.

Source: SIAM and FADA.

As is clear from the above chart, in each month the SIAM sales numbers have been more than the FADA sales numbers. In fact, as per SIAM, a total of around 9.64 million units of two-wheelers were sold in India during this financial year. FADA puts the number at 6.19 million units, almost 36% lower. This is a difference of close to 3.45 million units.

3) What explains this difference? A small part of it stems from the fact that FADA sales numbers do not take into account sales made in the states of Andhra Pradesh, Telangana and Madhya Pradesh, which aren’t yet on the government’s Vahan 4 database, which FADA uses to publish the retail sales numbers. But retail sales in just three states can’t explain a difference of 3.45 million units between the SIAM sales number and the FADA sales number.

4) So what does this mean? This basically means that while manufacturers have been selling two-wheelers to retailers and retailers haven’t been able to sell a significant portion of what they have bought from manufacturers to the end consumer. Channel stuffing has been carried out and now the retailers have ended up with a significant amount of inventory. FADA suggests that the average inventory of two-wheelers with dealers is at 45-50 days. This is at the end of the festival season. Last year, at the end of the festival season the two-wheeler retailers had an average inventory of 35-40 days. What this means is that channel stuffing has gone up during the course of this year and last year’s problem has continued taking on an even bigger form.

5) Why has channel stuffing gone up? A possible explanation for this lies in the fact that both manufacturers and retailers stocked up in the hope of sales picking up during the festival season. In fact, the sales did pick up in November, with 1.41 million units and more (if we take three states for which FADA does not have data for), being sold at the retail level, the best during the course of this financial year. But this best wasn’t good enough to exhaust a bulk of the inventory build up that happened, given that retailers still have close to 50 days inventory.

Interestingly, if we look at the total sales of two-wheelers as per FADA during the 42-day festival season, from Navratri to Diwali, they were at 2.03 million units, 6.3% lower than last year. Clearly, when it comes to two-wheelers, the bets of both the manufacturers and retailers have turned out to be way too optimistic. The so-called revival in sales as per SIAM can be correctly interpreted as scooters and motorcycles stored in godowns of retailers, waiting to be sold.

6) So how bad is the situation? Let’s concentrate on FADA data for this, simply because it represents real consumer sales. Also, let’s ignore the months of April and May, when a lockdown to prevent the spread of the covid pandemic was in place and very little actual sales happened at the retail level. How do things look between June and November 2020, in comparison to the same period in 2019?

Around 6.04 million units were sold at the retail level between June and November 2020, which is 28% lower than the 8.38 million units sold during the same period last year. Clearly, retail sales have taken a huge beating.

Take a look at the following chart, which plots the fall in retail sales which happened in a given month this financial year vis a vis last financial year. Also, I have considered sales in October and November together simply because the festival of Diwali was in October last year and in November this year. This makes the comparison more robust.

Source: Author calculations on FADA data.

As can be seen, the fall in sales this year was at 40.92% in June. (I have ignored the April-May data because of the lockdown). The fall was at 12.62% in September. In the festival season of October-November it stood at 23.79%. This is a worrying sign.

7) A few two-wheeler manufacturers have made a lot of song and dance about their sales over the last few months. Let’s take a look at how things look for them during the months of October and November this year vis a vis last year. This is FADA data, hence, the usual disclaimer applies.

Source: Author calculations using FADA data.

As can be clearly seen from the above chart, the sales of the five largest two-wheeler companies during October and November this year, have been lower than the last year. On the whole, their sales were 2.25 million units, around a quarter lower than last year. The question is: what was the song and dance all about. Pleasing the government?

Finally, what will the future look like? Let’s take a look at this pointwise.

1) With an inventory of around 50 days at the retail level, the number of two-wheelers leaving the factories of two-wheeler manufacturers in the months to come will come down, unless retail sales improve dramatically. This has already happened in November with the difference between SIAM data and FADA data narrowing. The chances of retail sales picking up dramatically are low.

2) As far as retail sales are concerned, it will be interesting to see how the post-festival season period will play out. Clearly, the months of October and November were not as good this year as they were last year.

3) Also, it needs to be kept in mind that a good portion of the sales during June to November, would have been pent up demand or people who wanted to buy a two-wheeler during April and May, and couldn’t buy due to the lockdown. Further, a significant number of people must have bought two-wheelers over the last few months to avoid taking public transport. Has this demand exhausted? It is difficult to answer this question with total certainty, nevertheless, a significant portion of this demand must have led to purchases by now.

4) How the banks go about lending two-wheeler loans in the months to come will be interesting to watch. Thanks to a case which is currently on in the Supreme Court, banks haven’t gotten around to marking retail loans of under Rs 2 crore which have gone bad, as bad loans.

To conclude, it will be interesting to see how two-wheeler sales go in the remaining part of the year. From what data and logic currently suggests, things will continue to remain difficult this year. And that in turn suggests that the ability and the mindset of the Indian middle class to pay EMIs at this juncture will continue to remain limited.

Finally, petrol prices are on their way up.

Mannubhai motor chali pum pum pum.
— Rajendra Krishan, Laxmikant Pyarelal, Kishore Kumar, Asrani and Sikandar Khanna, in Phool Khile Hain Gulshan Gulshan.

Amitabh Kant, the Indian Middle Class and their Dream of a Benevolent Autocrat

Dekh tere sansar ki halat kya ho gayi bhagwan,
Kitna badal gaya insaan, kitna badal gaya insaan.

— Kavi Pradeep, C Ramachandra, Kavi Pradeep and IS Johar, in Nastik (1954).

Sometime in late December last year I was part of a panel deliberating on where the Indian economy is headed, at a business school in Mumbai.

Towards the end of the discussion, a fund manager sitting towards my right, offered his final reason on why the so-called India growth story was faltering. He said, India has too much democracy.

The room was full of MBA students, just the kind of audience which laps up reasons like the one offered by the fund manager. As soon as he finished speaking, I explained to the audience why the fund manager was wrong, not just because India and the world need democracy, but also from the point of view of economic growth.

Of course, that wasn’t the first time I had heard the too much democracy argument being made in the context of it holding back India’s economic growth. Over the years, I have seen, friends, family members, random acquaintances and men and women I don’t know, make this argument with panache and great confidence.

It seemed, as if, in their minds, they had a picture of this great leader who would come on a white horse, brandishing his sword, and set everything right. They wanted India to be governed by a benevolent autocrat. 

Given this, it is hardly surprising that Amitabh Kant, the CEO of the NITI Aayog, and one of central government’s top bureaucrats, said yesterday (December 8, 2020): “Tough reforms are very difficult in the Indian context, we are too much of a democracy.”

The thinking here is that given that India is a democracy, decision making takes time and effort and you can’t just push through economic reforms which can lead to economic growth. Getting things done needs a collaborative effort and hence, is deemed to be difficult. Hence, it would be great to have less democracy, making it easier for a strong leader to push economic reforms through.

Of course, the mainstream media has largely ignored Kant’s comment. But this is an important issue and needs to be discussed.

The question is where does the thinking of too much democracy come from.

Some of it is remnant from the emergency era of 1975-1977, when trains used to apparently run on time. Trains not running on time was basically a manifestation of the general frustration of dealing with the so-called Indian system.

The logic being that, with the then prime minister Indira Gandhi keeping democracy on a backseat, it essentially ensured that the system (represented by trains) actually worked well (represented by trains running on time).

In the recent years, too much democracy hurting India’s future economic prospects comes from the economic success of China. China doesn’t have democracy. The Chinese Communist Party governs the country. In fact, there is no difference between the Party and the government.

This essentially has ensured they can push economic growth without any resistance from the opposition, different sections of the society or the citizens themselves for that matter.

China is not the only example of this phenomenon. Countries like South Korea under Park Chung-hee, Taiwan under Chiang Kai-shek and Singapore under Lee Kuan Yew, made rapid economic surges under leaders who can be categorised as benevolent autocrats.

As economist Vijay Joshi said at the 15th LK Jha memorial lecture at the Reserve Bank of India, Mumbai, in December 2017:

“ Fewer than half-a-dozen of the 200-odd countries in the world have achieved super-fast and inclusive growth for two or more decades on the run, and almost all of them were autocracies during their rapid sprints.”

So, history tells us that most super-fast growing countries at different points of time have been autocracies.

Beyond this, there is the so-called India growth story which also leads to the sort of thinking which concludes that too much democracy hurts economic growth. Ravinder Kaur makes this point beautifully in Brand New Nation—Capitalist Dreams and Nationalist Designs in Twenty-First-Century India.

As she writes:

“What is dubbed a growth story in policy-business circles is essentially an enchanting fairy-tale blueprint of economic reforms along with calls of a strong political leader to implement it… After all, capital has always rooted for strong, decisive leaders and centralized governance that can ensure its swift mobility and put the nation’s resources at the disposal of investors.”

A good part of India’s corporate and non-corporate middle class buys into this kind of thinking. They look at themselves as investor-citizens.

This leads to the firm belief that autocracies lead to faster economic growth. Hence, too much democracy is bad for economic growth. Only if India had a stronger leader. QED. Or so goes the thinking.

Dear Reader, this is nothing but very lazy thinking. While, most super-fast growing countries may have been autocracies with a benevolent autocrat at the top, the real question is, are all autocracies with a benevolent autocrat at the top, or at least most of them, super-fast growing countries.

Economist William Easterly makes this point in a research paper titled Benevolent Autocrats. As he writes: “The probability that you are an autocrat IF you are a growth success is 90 percent. This probability seems to influence the discussion in favour of autocrats.”

But that is the wrong question to ask. The question that needs to be asked should be exactly opposite—if a country is governed by an autocrat what are the chances that it will be a growth success? Or as Easterly puts it: “The relevant probability is whether you are a growth success IF you are an autocrat, which is only 10 percent.”

And this is where things get interesting, if we choose to look at data. Ruchir Sharma offers this data in his book The Ten Rules of Successful Nations. Let’s look at this pointwise.

1) In the last three decades, there were 124 cases of a country growing at faster than 5% for a period of ten years. Of these, 64 growth spells came under a democratic regime and 60 under an authoritarian one. Clearly, when it comes to countries growing at a reasonable rate of growth for a period of ten years, democracies do well as well as authoritarian regimes.

2) Let’s up the cut off to an economic growth of 7% or more for a period of ten years. How does the data look in this case? Sharma looked at data of 150 countries going back to 1950. He found 43 cases where a country’s economy grew at an average rate of 7% or more for a period of ten years. Interestingly, 35 of these cases came under authoritarian governments. As mentioned earlier, super-fast growth and autocrats go together. But this just shows one side of things.

3) So, what’s the other side? While super-fast growth in a bulk of cases has happened under authoritarian regimes, so have long economic slumps or economic slowdowns.

As Sharma writes:

“Long slumps are also much more common under authoritarian rule. Since 1950, there have been 138 cases in which, over the course of a full decade, a nation posted an average annual growth rate of less than 3 percent—which feels like a recession in emerging countries. And 100 of those cases unfolded under authoritarian regimes, ranging from Ghana in the 1950s and ’60s to Saudi Arabia and Romania in the 1980s, and Nigeria in the 1990s. The critical flaw of autocracies is this tendency toward extreme, volatile outcomes.”

Also, under authoritarian regimes, economic growth can see wild swings.

So, for every China there is a Zimbabwe as well, which people forget to talk or think about. For every Singapore, there are scores of African dictators who killed thousands of people during their rule and destroyed their respective economies. Hence, while autocracies may lead to super-fast growth, they can also lead to long-term economic stagnation and huge political turmoil.

Also, evidence is clear that steady growth happens best in democracies.

As Sharma writes:

“Together, Sweden, France, Belgium, and Norway have posted only one year of growth faster than 7 percent since 1950. But over that time, these four democracies have all seen their average incomes increase five- to sixfold, to a minimum of more than $30,000, in part because they rarely suffered full years of negative growth.”

Further, if you look at the list of countries with a per-capita income of more than $10,000, all of them are democracies. China, as and when it reaches there, will be the first autocracy, which will make it an exception. An exception, which proves the rule. That is, in the  medium to long-term, democracy and economic growth go hand in hand.

At least, that’s what history and data tell us. But don’t let that come in your way of believing the good story of authoritarian regimes run by benevolent autocrats leading to fast economic growth all the time.

It must be true if you believe in it. I mean, Mr Kant surely does. And so do a whole host of middle class Indian men and women.