Auto Sector Recovery is Not Real. It’s a Mirage Created by Inventory Pileup

All is well, when it comes to two-wheeler and passenger-vehicle sales. Or so we have been told over the last few days.

The small industry which has developed over the last few months, and whose main job is to shout recovery recovery at a drop of a hat, is at it again.

But should we believe them? Or rather how much should we believe them?

As per Autocar domestic sales of passenger vehicles (of India’s major car companies) in September 2020, went up by around 35% to a little over 2.75 lakh units. The September 2019 sales had been at a little over 2.04 lakh units.

In fact, August 2020 sales of the same set of companies had been at around 2.01 lakh. When we take that into account, the recovery has been very good.

As per Rushlane, the domestic sales of India’s major two-wheeler companies in September 2020 stood at 17.81 lakh, up 11.6% from September 2019, when sales had stood at 15.95 lakh.

Varied reasons have been offered for this recovery. Let’s take a look at these reasons pointwise.

1)  The pent-up demand is leading to higher sales (How do you argue against something like that?)

2) The economy is getting back on track. (Well!)

3) People do not want to use public transport due to the fear of the covid-pandemic and hence, are buying two-wheelers and cars. (Common sense and how do you argue against something like that).

4) Very low interest rates offered by banks on car loans. Take a look at the following chart.

Low interest rates

Source: ICICI Securities.

Car loan interest rates are as low as 6.5%. This has also helped push up sales. Along with low interest rates, many banks are offering very high loan to value, when it comes to entry-level cars. This means if the price of the car is Rs 5 lakh, some banks are willing to offer 95-100% of this price as a loan.

Also, as a research note authored by ICICI Securities analysts, Kunal Shah, Renish Bhuva and Chintan Shah points out, banks are offering, “cost-optimised financing schemes (tenure up to 7-8 years, step-up EMI, balloon EMI, low down payment options, scheme for low EMI for three months, etc).”

So, not only can customers borrow easily, they can do so in many different ways.  They have better choice and all this is encouraging them to borrow (But are they borrowing is the real question?).

5) Also, the agriculture sector continues to do well, and this has meant increased purchasing power in rural India, which has led to an increase in the purchase of two-wheelers. (This is a story as old as the ages, when urban India doesn’t do well, rural India has to).

These are the reasons that have been offered for India’s automobile sector doing well. Now let’s take a look at whether a recovery has really happened.

1) What automobile companies refer to as domestic sales are essentially dispatches to dealers or factory gate shipments. These are units leaving the manufacturing facility for sales to consumers. They haven’t been sold as such. Generally, company dispatches are a reasonable indication of end consumer sale. But this time companies are building up inventory at the dealer levels in the hope of sales picking up during the so-called festival season. The building up of inventory has been necessitated by the new BS VI environmental norms, which has led to the requirement of building new inventory.

This does not mean that the whole dispatch ends up as dealer inventory but a substantial portion does.

2) Hence, a better way of looking at data is to look at the number of registrations. This data is released by the Federation of Automobile Dealers Association (FADA). As per this data, in August 2020, 1.79 lakh passenger vehicles were registered. This is around 25,000 units lower than the dispatches of 2.04 lakh units carried out by major car companies during August.

When it comes to two-wheelers, the gap is bigger. In August 2020, as per FADA nearly 8.99 lakh two-wheelers were registered. In comparison 14.94 lakh two-wheelers from major companies had been dispatched.  There is a gap of close to six lakh units, which has ended up as inventory.

Take a look at the following table, which gives registration numbers of different kinds of vehicles.

Who is really buying?

2W = Two wheelers. 3W = Three wheelers. CV = Commercial vehicles. PV = Passenger Vehicles (Cars). TRAC = Tractors.

The sales and registration of commercial vehicles remains down in the dumps. This is hardly surprising given that the investment in the economy has totally collapsed. As per the Centre for Monitoring Indian Economy, the value of total new investments announced during July to September 2020, stood at Rs 58,601 crore, the lowest in fifteen years (without adjusting for inflation).

In fact, tractors are the only vehicles which have shown an increase in registration. This is due to the agriculture sector doing well and the rural rich doing well.

As per the VAHAN data released by the government, the total number of motor cars (as they call it) registered in August stood at 1.75 lakh . As per this data around 8.81 lakh two-wheelers were registered in August 2020, telling us the same story. Clearly, a significant portion of dispatches until August were for building inventory.

(Vahan data covers 1,242 out of 1,450 RTOs in the country. Hence, there is bound to be some discrepancy between company dispatches and registration numbers. But six lakh units, which is the difference in August in case of two-wheelers, is too huge to be just explained by this. FADA also refers to the Vahan database)

We do not have the September data for registrations as yet. But what we know clearly is that dealers have a lot of inventory piled up in the months up to August. And there is no reason for this to have stopped in September as well.

3) In fact, there is another factor that needs to be taken into account and that is the base effect. Two-wheeler and passenger vehicle registrations were already slow around this time last year. Hence, it makes sense to compare the 2020 numbers with the registrations that happened around this time in 2018. The registrations of motorcars as per Vahan data in August 2018 stood at around 1.96 lakh (compared to 1.75 lakh in August 2020). When it comes to two-wheeler registrations they stood at 12.12 lakh (compared to 8.81 lakh in August 2020). Hence, in that sense we are two-years behind when it comes to real consumer sales.

4) Let’s take a look at bank loans on this front. This is where things get very interesting. More than three-fourth of cars and two-wheelers were bought on loans before the covid-pandemic struck. The RBI does not give a proper division of different kinds of ‘vehicle loans’. But I guess even an overall number can be used to draw some inferences. The overall vehicle loans given by banks between end of March and August have contracted a little. This means that on the whole, people have been repaying loans and net-net banks haven’t given any fresh vehicle loans. While net-net between end March and end August there has been no fresh lending of vehicle loans by banks, some lending has happened in July and August. This stands at Rs 5,167 crore.

The question is if banks aren’t giving out vehicle loans how are all these vehicles being bought? Of course, banks aren’t the only financiers of vehicle loans, the non-banking finance companies (NBFCs) also finance the buying of vehicles.

Are NBFCs filling up this space? The NBFCs are also dependent on banks for financing. This means that NBFCs borrow from banks and then lend that money out.  The overall bank lending to NBFCs has contracted by 1.3% or Rs 10,620 crore, between end March and end August.

Hence, the ability of NBFCs to continue financing vehicles, when their borrowing from banks has come down, is rather limited.
This does not mean that banks are not interested in financing any kind of vehicle. They seem to be interested in financing cars but not two-wheelers. What this means is that if “genuine sales” don’t pick up, the huge inventories that the two-wheeler dealers have built up will become a problem for them. Car dealers will face the same problem though not of the same proportion.

5) Also, as far as financing goes, while banks are looking to finance a higher loan to value for entry level cars, that doesn’t seem to the case for cars as a whole. As Vinkesh Gulati, the president of FADA told Bloomberg Quint: “It has come to down to 65%-70%.”

6) Finally, what is surprising is that September also had the 16-day Shraad period from September 1 and September 17, when people believe it’s inauspicious to make purchases. In this scenario, it becomes even more difficult to believe that passengers vehicle sales (car sales) went up by as much as 35% during the month. It’s looking more and more like an inventory pile up at dealer level than genuine sales.

As Gulati had told Moneycontrol.com in mid-September: “This year all festivities will begin a month after Shraadh gets over and this period is also not considered to be good for sales in the North, East and West of the country. We are expecting September to be below August and also below last September.”

To conclude, as the economy opens up, automobile sales are bound to improve gradually. Nevertheless, there are several nuances that need to be kept in mind, before announcing an auto sector recovery. The auto-sector in India forms around half of the manufacturing sector and hence, is very important. And given that, it is important to analyse it carefully.

From the looks of it, the difference between genuine registrations at the retail level and the company dispatches, will only go up in September as the inventory pile up continues.

In fact, this inventory build-up might also be responsible to some extent for the increase in goods and services tax collections seen during September. The trouble is that the end consumer is yet to pay this tax.

 

Why India is Not Buying as Many Cars as Carmakers Want

Yesterday morning, there was a news flash that the carmaker Toyota does not want to expand any further in India.

Shekar Viswanathan, vice chairman of Toyota’s Indian unit, Toyota Kirloskar Motor, told the news-agency Bloomberg: “The government keeps taxes on cars and motorbikes so high that companies find it hard to build scale.”

The company later released a statement saying: “Toyota Kirloskar Motor would like to state that we continue to be committed to the Indian market and our operations in the country is an integral part of our global strategy.” General Motors quit India in 2017.

In 2019, Ford Motor Company agreed to move a bulk of its assets into a joint venture with Mahindra and Mahindra. Whether Toyota wants to expand in India or not remains to be seen, but this sort of prompted me to look at car sales data over the years and it makes for a very interesting read.

Motown Slowdown

Source: Centre for Monitoring Indian Economy.

The car sales data is available from 1991-92 onwards, a year in which around 1.5 lakh units were sold. The actual jump in car sales came in the decade between 2001-02 and 2011-12, when the car sales jumped from 5.09 lakh units to 20.31 lakh units, an increase of 14.8% per year on an average.

The car sales in 2019-20 were at 16.95 lakh units and lower than the sales in 2011-12. Of course, some of this was on account of the spread of the covid-pandemic. But car sales had been slow even before covid struck. Let’s ignore the car sales for 2019-20 and look at car sales for 2018-19, which were at 22.18 lakh units.

The car sales between 2011-12 and 2018-19 grew at the rate of 1.3% per year, which basically means that they were largely flat.

If one looks at the increase in car sales over the decade between 2008-09 and 2018-19, when the sales jumped from 12.2 lakh units to 22.2 lakh units, it works out to an increase of 6.2% per year.

Irrespective of whether Toyota is leaving India or not it is safe to say that car sales haven’t been going up much in the last ten years or more. In fact, if we look at data a little more minutely, things get more interesting.

A bulk of the cars being sold are essentially mini and compact cars (3201mm to 3600mm and 3601mm to 4000mm). Data for this is available from 2001-02 onwards. Take a look at the following chart, which plots the number of mini and compact cars sold as a proportion of total cars sold.

Value for Money?


Source: Author calculations on Centre for Monitoring Indian Economy data.

In 2001-02, mini and compact cars formed 82.4% of cars sold. It fell to a low of 72.9% in 2012-13. It has largely risen since and in 2019-20 reached a high of 93.7%. The point being that over the years a greater proportion of car buyers have bought value for money cars, making it difficult for many foreign car companies, given that this end of the market is dominated by Maruti Suzuki and Hyundai.

In the last five years, the sales of cars of up to 4,000 mm in length has simply gone through the roof. This is a function of the fact that the economic growth and the income growth have both stagnated in comparison to the past. Take a look at the following chart, which plots the increase in per capita income over the years in nominal terms.

Show Me the Money


Source: Centre for Monitoring Indian Economy.

The per capita income growth has fallen over the years and that is reflected in the kind of cars people buy. There is a straightforward connect between the second chart and the third chart. Car sales have gone up at a fast pace whenever there has been a consistent double-digit growth in income. Between 2014-15 and 2019-20, the per capita income has consistently grown in single digits, except in 2016-17, when it grew at 10.4%. This reflects in the car sales as well.

This slowdown in income growth indicates an economy which has slowed down majorly over the last few years. And this shows in the slow growth in car sales.

Of course, this is not the only reason for slow growth in car sales. There is also the problem of higher taxes. And Viswanathan of Toyota is not the only one who thinks so.

As RC Bhargava, the current chairman of Maruti Suzuki, India’s largest carmaker, and the grand old man of India’s car industry, puts it in his new book Getting Competitive—A Practitioner’s Guide for India:

“In India cars have always been considered a luxury product and taxed accordingly till the present… [this] despite being one of the few globally competitive industries. Both the Central and state governments levy taxes and the total is 2–3 times the tax in the developed countries.”

Of course, these taxes make cars expensive and that leads to lower sales growth. The car industry has tremendous multiplier effect on the overall economy. As Bhargava puts it:

“It generates high volumes of employment and leads to the development of many technologies and industries whose products are used in the manufacture of cars. These include steel, aluminium, copper, glass, fabrics, electronics and electricals, rubber and plastics.”

Essentially, high taxes on cars have ensured a slow growth of the industry. Slow growth of this industry has contributed to the overall slow growth of the economy. And the overall slow growth of the economy and incomes have contributed to the slow growth of the car industry. This is how it links up.

Hence, lowering taxes on the automobile sector in particular (something I have written about in the past) and on cars in particular, will work well for the economy. It might lead to lower per unit tax collections for the government, but the increase in sales volume should gradually make up for this.

Also, as I explain here, an expansion in manufacturing creates many services jobs as well. But for all that to happen taxes need to come down. Nevertheless, as Viswanathan told Bloomberg: “You’d think the auto sector is making drugs or liquor.”

The Curious Case of the Indian Festival Season

Summary: Does the Indian economy actually have a festival season when it comes to consumption? 

I recently did a long story for the Mint where I elaborated on why this festival season isn’t going to rescue the Indian economy.

One of the questions I originally wanted to explore in the piece was whether the so-called festival season actually has an impact on the overall economic growth or is it simply a marketing gimmick, like many other things. I couldn’t get into it for lack of space and hence, have decided to explore this separately here.

The festival season is defined as the period between October and December which typically has festivals like Dussehra, Diwali and Christmas, among other festivals. This is believed to be an auspicious period for making purchases, particularly the period between Navratri and Diwali.  Of course, there are many big festivals that do not happen during this three-month period, like Ganesh Chaturthi, Holi etc. (Even Dussehra can sometimes fall towards the end of September).

As a 2018 research note published by the rating agency Crisil points out: “Indeed, in the last ten years, around 30% of two-wheeler sales has come in the festive months.”  Over and above this, industry estimates suggest that 35-40% of sales of consumer durables in particular electronic products, happens during the festival season.

Hence, in the run-up to this period, corporates are typically very confident about how festival season sales will perk up the overall economy. And this year, as I explained in my Mint piece, has been no different on that front. This grandstanding has only increased over the last few years as the economy has gone downhill. The corporates need to say something positive to keep the media interested and this is what they come up with. Come festival season, and all will be well. Of course, I am making this a tad simplistic, but I hope you do get the drift.

There is a simple way of checking out whether the so-called festival season has a marked impact on economic growth and whether growth during these three months is higher than the growth during the remaining part of the year.
India started declaring quarterly gross domestic product (GDP) data from 1996 onwards. Hence, GDP growth data is available from April-June 1997, a year later. GDP is a measure of the economic size of a country.

Between April to June 1997 and April to June 2020, we have 93 counts of GDP growth data, with 23 counts of the October to December period. In three years out of the data for 23 years that we have, the economic growth has been the fastest during the October to December period, in comparison to the remaining parts of the year.

Also, the three instances where before 2011, in 2001, 2003 and 2010, when the economy during the period grew by 6.3%, 11.2% and 10.7%, respectively. So, clearly on the whole, there is no evidence to suggest that the economy grows faster during the so-called festival season vis a vis the remaining parts of the year. And there is nothing in the last decade.

While, the economy may not grow faster during the festival season, that is no reason to believe that the private consumption part of the economy doesn’t grow faster during this period than other periods.

One of the methods to calculate the GDP is private consumption expenditure plus government expenditure plus investment plus net exports (exports minus imports). Private consumption expenditure, the stuff you and I buy to keep our lives going, over the years has formed the biggest part of the GDP. Data from the last 24 years shows that it typically tends to oscillate between 55-60% of the economy. On rare occasions it goes above 60% or falls below 55% (as it has during the period April to June 2020).

There are seven instances in the growth data of 23 years that is available, where private consumption expenditure has grown faster during the festival season than other periods. Three of these instances are between December 1996 and December 2010 and four after that. What this means is that around 30% of the time in the last 23 years, the festival season consumption growth has been the fastest during the year.

While, this is better than overall growth, it is not definitive evidence. Let’s look at something specific like domestic two-wheeler sales and see if companies end up selling more two-wheelers during the festival season than any other time of the year.

We have quarterly two-wheeler data going as far back as April to June 1991, that is for a period of 29 years. In eight out of these 29 years, two-wheeler sales were the most during the festivals season than other parts of the year. This works out to 27.6%. The interesting thing is that the sales during the festival season were the highest in each of the years from 2002 to 2007. This makes for six out of the eight instances. There have been only two instances in the 2010s, in 2012 and in 2013, and no instance in the 1990s.

What more data can we check? Let’s look at domestic car sales. There are two instances (2015 and 2019) where cars during the festivals season have outsold the other periods, in the last 29 years. Clearly, cars don’t have a festival season.

Ideally, I would have liked to look at the data for electronic products (washing machines, phones, TVs, ACs, etc.) as well. But data for such products isn’t really publicly available.

From what is publicly available we can conclude that the evidence for there being a festival season for Indian consumption is at best weak. In fact, when it comes to car sales, evidence for many years suggests that most cars actually sell during the period January to March.

So, the question is why do corporates keep talking about festival season sales? In the past few years, as the economy has gone downhill, it is a good way to sell hope which the media and the people reading and watching the media, are desperately looking for. (For all you guys who keep asking we know the problems, give us the solutions, this is for you).

One sector which has used this strategy over and over again, over the years, is the real estate sector. Come August and you will start seeing the gurus of this sector telling the media that Diwali sales are going to perk up. But what has happened instead, at least over the last half a decade is that the number of unsold homes has gone up and at the same time the total amount of money that the real estate sector owes to the banks has gone up as well. Of course, it hasn’t defaulted as yet, primarily because the Reserve Bank of India has come to its rescue and changed regulations.

For the media the belief in the festival season makes sense because it tends to drive up advertisements which it badly needs.

To conclude, even if there are sectors that benefit because of the festive season, it doesn’t translate into overall consumption and economic growth, that much is a given. The reason for the same can lie in the fact that while people increase consumption of a few things, they cut down on consumption of other things to maintain a sense of balance. But that is just an explanation, I really have no evidence of the same.

PS: For all you marketing and economic researchers out there, this might be an interesting topic to explore, using a more robust methodology than what I have used here.

What Vehicle Sales Tell Us About Notebandi

car

A few days back I got an email from a reader. This email essentially said that the world had moved on from demonetisation/notebandi and it was time that I did as well.

Well, people do get bored. So, does the media.

And in the process, they stop following issues that they did once. As fatigue sets in, this essentially leads to a situation that issues do not get followed to their logical conclusion.

It’s like a daily soap opera which keeps undergoing multiple changes in plots, depending on what the viewers want. Or rather depending on what the managers running the show think the viewers want.

The trouble is that my writing is not like that. Also, now we have some data points to properly analyse notebandi and its impact on the Indian economy.

And it would be rather stupid of me to stop writing on the issue right now. Hence, my writing on notebandi is likely to continue in the months to come and who knows, possibly even years.

So, dear reader, that was that. Let’s now cut to today’s edition of the Diary.

Take a look at Figure 1. It shows the two-wheeler sales over the last five months.

Figure 1: 

Figure 1 clearly shows that there has been a downward trend in two-wheeler sales since September 2016. Notebandi only accentuated this trend. Having said that there has been some recovery in sales in January 2017.

Two-wheeler sales are a very important data point. They show the spending potential of many Indians. They also have a very high correlation with India’s informal economy, which doesn’t get captured very well in the gross domestic product(GDP) numbers.

As Ritika Mankar Mukherjee and Sumit Shekhar of Ambit Capital write in a recent research note: “History suggests that there exists a strong correlation between the nominal GDP generated by the informal sector and… two-wheeler sales data.” And given that two-wheeler sales have shown a largely downward trend lately, what can be said? As Mukherjee and Shekhar point out: “The latest data… shows a marked deterioration underway in the informal sector of the economy.”

As mentioned earlier, the informal sector is not captured well enough in the GDP numbers. As the Economic Survey of 2016-2017 points out: “It is clear that recorded GDP growth in the second half of FY2017 [October 2016 to March 2017] will understate the overall impact because the most affected parts of the economy-informal and cash based-are either not captured in the national income accounts or to the extent they are, their measurement is based on formal sector indicators. For example, informal manufacturing is proxied by the Index of Industrial Production, which includes mostly large establishments. So, on the production or supply side, the effect on economic activity will be underestimated.”

Given this, data points like two-wheeler sales become very important in gauging the real impact of notebandi on the Indian economy. Let’s see how the data for the remaining two months (February and March 2017) comes out. But from four months of data that is available for the second half of this financial year, it can safely be said that things aren’t looking good on this front. And this should be a huge reason to worry. As per Mukherjee and Shekhar, “The informal sector accounts for ~40% of India’s GDP and employs close to ~75% of the Indian labour force.”

Now let’s look at domestic passenger car sales between September 2016 and January 2017. Take a look at Figure 2.

Figure 2:As Figure 2 shows, the domestic passenger car sales have recovered much more quickly than two-wheeler sales, in the aftermath of demonetisation. The January sales were only 4.5 per cent lower than the September sales. In case of two-wheelers, the January sales were still 30.6 per cent lower than the September sales.

What does this tell us? It tells us very clearly that rural India was impacted much more by demonetisation. It tells us that the not so well off have been more impacted much more by demonetisation than the well off. As writer Amit Varma put it in a recent speech: “In all this, the rich got away… You see a reflection of this in automobile sales. They have plummeted for two-wheelers and three-wheelers, but SUV sales are steady. The rich got away.”

And that is something worth thinking about.

The column was originally published on Equitymaster on February 20, 2017

What Do Car Sales Tell Us About Black Money?

car

All through last week I wrote on the data put out by the Income Tax department sometime back. This is perhaps the last column based around the data.

Take a look at the following table. I know it’s a very large table, but it’s important to reproduce it here. The table gives the details about individuals who pay income tax in India. This is for the assessment year 2012-2013. The income tax returns for the income earned during 2011-2012 were filed during 2012-2013.

RangeNo of returnsSum of tax payable (in Rs crore)
<0240
= 0162,47,598
>0 and <=1,50,000111,28,41923446
>150,000 and <= 2,00,0003,02,3395254
>2,00,000 and <=2,50,0002,14,4374790
>2,50,000 and <= 3,50,0002,64,9907818
>3,50,000 and <= 4,00,00086,7013243
>4,00,000 and <= 4,50,00069,0772930
>4,50,000 and <= 5,00,00058,2412762
>5,00,000 and <= 5,50,00048,1972527
>5,50,000 and <= 9,50,0001,78,65412580
>9,50,000 and <= 10,00,00010,5061024
>10,00,000 and <=15,00,00063,8767746
>15,00,000 and <= 20,00,00030,0165171
>20,00,000 and <= 25,00,00016,7953740
>25,00,000 and <= 50,00,00029,88110229
>50,00,000 and <= 1,00,00,00011,0777474
>1,00,00,000 and <=5,00,00,0005,0428907
>5,00,00,000 and <=10,00,00,0002661788
>10,00,00,000 and <=25,00,00,000901393
>25,00,00,000 and <=50,00,00,00021707
>50,00,00,000 and <=100,00,00,0008590
>100,00,00,000 and <=500,00,00,0003437
Total number of individuals who filed income tax returns287,66,258114556
Total number who paid tax125,18,660car

In the assessment year 2012-2013, around 2.88 crore Indians filed income tax returns. Of this nearly 56.4% or 1.62 crore did not pay any income tax. The rest, that is, around 1.25 crore individuals paid income tax.

Of the 1.25 crore who paid income tax, nearly 1.11 crore individuals or 89% paid an income tax of less than Rs 1.5 lakh, for the assessment year 2012-2013. In total, these individuals paid an income tax of Rs 23,446 crore. This works out to an average of Rs 21,069. Of course, the median tax paid would be even lower than this.

Hence, 89% of those who paid tax in India in the assessment year 2012-2013, paid an average income tax of just over Rs 21,000 for the year. This means an average income tax of less than Rs 2,000 per month.

This means around 14 lakh Indians (13.90 lakhs to be precise) actually got around to paying some income tax. They paid around Rs 91,110 crore of income tax in total.

It is safe to say here that the average Indian does not pay income tax. Now let’s compare this to some consumption numbers. Take the case of car sales. In 2011-2012, around 25.34 lakh cars were sold.

What does this tell us? In a country where around 13.90 lakh individuals actually pay some income tax, 25.34 lakh cars are sold during the course of the year. In fact, the number of cars sold has continued to be in the range of 23.4-25.6 lakh cars a year, since then. This basically tells us that many people who are buying cars are not paying any income tax.

This could be because of two reasons. One reason could be that those earning income from agriculture, which is tax free, are buying cars. The other and the more likely reason is that cars are being bought with money on which income tax has not been paid i.e. cars are being bought with black money.

Also, if we look at the income distribution of the salaried individuals paying income tax, around 20.2 lakh people had declared incomes between Rs 5.5 lakh and Rs 9.5 lakh, in the assessment year 2012-2013. But the total number of cars sold during the year stood at greater than 25 lakhs. It is safe to say here that those buying cars are earning at least Rs 5 lakh per annum. The question is, who is buying these cars then?

In short, it is safe to come to the conclusion that a significant portion of the cars are being bought by those who have black money.

The good news is that it shouldn’t be very difficult for income tax authorities to figure out who these people are, given the information technology infrastructure that is available these days. Of course, it may not be feasible for them to go after each and every such individual.

The column originally appeared in the Vivek Kaul Diary on May 9, 2016