TN Ninan

For Make in India to succeed, India needs to be a part of global supply chains

make in india
Indian exports have been falling for a while now. For September 2015, the merchandise exports (or goods exports) fell by around 24.6% to $21.8 billion, in comparison to September 2014.

In fact, the merchandise exports between April and September 2015, the first six months of this financial year, have gone down by 17.6% to around $133 billion.

This isn’t surprising in an environment where global growth is slowing down. The International Monetary Fund (IMF) projects the global growth for 2015 to be at 3.1%. This is 0.3% lower than in 2014. Further, it is also 0.2% lower than the forecast IMF made in July 2015.

As the IMF points out: “Prospects across the main countries and regions remain uneven. Relative to last year, the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for the fifth year in a row, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries.”

It further points out that: “In an environment of declining commodity prices, reduced capital flows to emerging markets and pressure on their currencies, and increasing financial market volatility, downside risks to the outlook have risen, particularly for emerging market and developing economies.”

What this means is that the global economic growth this year and possibly the next, will remain worse than it was in the past. Hence, this will impact Indian exports. Exports for one country are essentially consumer and industrial demand in another.

Having said that Indian exports have fallen much more than other Asian countries. Take the case of China. The Chinese exports in September 2015 fell by 3.7% in comparison to India’s 24.6%. And this is clearly a reason to worry.

So what can India to do step up its exports? It is important to understand here that there are no quick fixes to this problem. An important thing for any country looking to drive up its exports in this day and age is to be a part of global supply chains.

As the World Trade Report for 2013 points out: “A central feature of this second age of globalization is the rise of multinational corporations and the explosion of foreign direct investment (FDI)…By 2009, it was estimated that there were 82,000 multinationals in operation, controlling more than 810,000 subsidiaries worldwide. Upwards of two-thirds of world trade now takes place within multinational companies or their suppliers – underlining the growing importance of global supply chains.”

This is an important factor that Indian policymakers need to understand because this is something that the country is clearly missing out on.

As TN Ninan writes in The Turn of the Tortoise—The Challenge and Promise of India’s Future: “India has not allowed large retail networks to set up base in India. The sourcing requirements of global retail chains would have encouraged scale manufacture that would have led in turn to export success. With the exclusion of the big firms and big supply chains, the country has found itself relatively excluded from global supply networks—and this has stunted export growth.”

One way of correcting this was by allowing foreign direct investment in big retail. The Modi government and the ruling Bhartiya Janata Party (BJP) have been against this. A possible explanation for this is the opposition of the trading community to big retail. The trading community remains a big supporter of the BJP.

In fact, India becoming a part of global supply chains is very important for the Make in India programme to succeed. As of now, it continues to remain a fancy slogan.

As Ninan writes: “In everyday terms, therefore, India does not have the equivalent of an Infosys or a Tata Consultancy Services when it comes to merchandise trade. Nor has it made it easy for Wal-Mart or IKEA to set up store chains in India, the way that IBM and Accenture have set up back offices for BPO. Some of this can still be done, though the political reluctance to allow a free run to large retail trade chains is a constraint.”

One school of thought often espoused these days is based that India will end up capturing the low-end export market being vacated by China. This logic is based on the Chinese labour costs going up. The per capita income of China in 2004 was $1498.2 (current US$, World Bank Data). This had jumped nearly five times to $7,593.9 in 2014. Hence, Chinese labour costs have shot up.

A May 2015 news-report in The Economist points out: “The China price is under pressure, though. Since 2001, hourly manufacturing wages in China have risen by an average of 12% a year…Some believe this means that China’s days as a manufacturing powerhouse are numbered.”

In 2013, Asia as a whole accounted for 46.5% of global manufacturing output. China accounted for half of Asia’s output.
With increasing labour costs the low end manufacturing may no longer be viable. As an example, The Economist points out: “Garments are a natural first step in the spread of production out of China: they are low-skill, low-cost and highly transportable.”

Is India in a position to capture this low-end manufacturing market which is likely to move out of China? In theory, yes. The per capita income in India in 2014 was at $1595.7, which is close to 79% lower than that of China at $7,593.9.

Hence, as far as labour costs are concerned India is cheaper than China. But there are cheaper options like Bangladesh and Myanmar, which are available to manufacturers. The per capita income of both these countries in 2014 was at $1092.7 and $1203.8 respectively.

Also, the labour cost is just one of the things that manufacturers look at. As Ninan summarises the issue: “China has the enabling factor of a very efficient infrastructure, which will not be replicated in the foreseeable future. Indeed, most producers looking for alternatives to China are not looking at India. Its rigid labour laws remain a handicap, its workers are not always productive, the infrastructure is deficient and dealing with the authorities is a nightmare. Almost all countries in East Asia offer easier working environments.”
The column originally appeared on The Daily Reckoning on Oct 24, 2015

The shift from agriculture to manufacturing will not be easy

make in india
One of the points that I have often made in The Daily Reckoning is about close to 50% of Indians being engaged in agriculture generating around 18% of the Indian gross domestic product (GDP). What this clearly tells us is that agriculture is a low-income earning activity.  It also tells us is that there are many more Indians employed in agriculture than there should be. And this can be made out from the fact that only 17% of Indians employed in agriculture, survive on money they make from it. The rest, have to do some other work along with working on the farm, in order to add to their meager income.

Hence, it’s a no-brainer to suggest that people need to be moved out from agriculture into other higher paying areas like industry and services. As TN Ninan writes in his new book The Turn of the Tortoise—The Challenge and the Promise of India’s Future: “Both productivity and incomes will go up substantially if more people can be moved from low-paying agriculture to higher-paying industry and services—a key transition the country has barely begun.”

The Make in India initiative of the Narendra Modi government should be seen in light of this. The programme envisages “an increase in the share of manufacturing in the country’s Gross Domestic Product from 16% to 25% by 2022” and “to create 100 million additional jobs by 2022 in manufacturing sector”.

One reason why this target at best remains a pipedream is because of the lack of education among Indians. The rate of literacy as per the 2011 Census stood at 74.04%. As this website points out: “Compared to the adult literacy rate here the youth literacy rate is about 9% higher. Though this seems like a very great accomplishment, it is still a matter of concern that still so many people in India cannot even read and write.”

The trouble with this literacy number is that it does not give you the whole picture. As per the Human Development Report 2014, the average Indian male has around 5.6 years of schooling and an average Indian female has around 3.2 years of schooling. Both Bangladesh and Pakistan are ahead of us. For Bangladesh, the numbers being 5.6 years and 4.6 years, respectively. For Pakistan, the numbers stand at 6.1 years and 3.3 years, respectively.

And this is where the plan to move people from agriculture to industry or services for that matter, starts to go haywire. As Ninan writes: “Acquiring job-related skills without the benefit of a basic education is a challenge—it is hard to be a fitter or an electrician at a construction site if you don’t know basic arithmetic and can’t read simple instructions on a product pack.”

What this means is that the Make in India plan cannot take-off beyond a point unless our primary education system starts to improve. Individuals need to spend more time in school receiving better quality education. As things stand currently not much is being learnt in schools.

In fact, surveys have pointed out that most children cannot read basic text. The Annual Status of Education Report facilitated by Pratham points out that only 48.1% of children enrolled in Class V could read standard II level text. This means more than half of children enrolled in standard V cannot read standard II level text. In fact, more than one-fourth of children enrolled in standard VIII could not read standard II level text. The report further points out: “The gap in reading levels between children enrolled in government schools and private schools seems to be growing over time.”

And this is a worrying factor. Further, moving people away from agriculture into other more productive domains is a time taking process. As Ninan writes: “Thailand, one of the most successful manufacturing countries, has those in agriculture continuing to account for 40 per cent of its workforce. China, despite its considerable success in building a factory sector, has 35 per cent of its workforce still engaged in agriculture, generating about 10 per cent of its GDP.”

The point being that “whether one likes it or not, the transition away from agriculture as the primary source of employment is going to be slow”.

So what is the way out? Ninan suggests that one way out is to increase productivity of Indian agriculture. “Paddy output per hectare [in India] at about 3.7 tonnes, is 20 per cent short of the global average and barely half of China’s. One reason is that Indian farmers are not using the latest strains of high-yield varieties (growing them is also more employment-intensive) or adopting new methods of cultivation that require less water. It’s the same with maize,” writes Ninan. If these numbers were increased India’s agricultural output would go up in the days to come, and so would the income of people dependent on agriculture for their living.

The problem here is that the size of farms over the decades has grown smaller. Take a look at the accompanying table from the annual report of Department of Agriculture and Cooperation 2013-2014.

What does the table tell us? It shows very clearly that most farms are small in size and less than two hectares in area. 85% of the farms are less than two hectares in size and 67% of the farms are less than one hectare in size. And this doesn’t help the productivity cause at all.

As Mihir Sharma writes in Restart—The Last Chance for the Indian Economy: “Indian farms are tiny. Over 80 per cent of them are smaller than 2 hectares…And they are getting even smaller. They are just over half as big today, on average, as they were in 1970. Everywhere else in the world, farms have gotten bigger in the same period…Many people have been convinced that if there was just some way to increase agriculture’s share of output, some way in which all of agriculture received ‘support’, things would be better.”

Only if it was as simple as that.

The column originally appeared on The Daily Reckoning on October 20, 2015

India’s Great Delay: From Son of India to Make in India

make in india

The great filmmaker Mehboob Khan’s last film release was Son of India. The movie released in 1962 and Khan died in 1964.

The movie is now more or less forgotten except for the song: “nanha munna rahi hoon desh ka sipahi hoon”. The song was a regular feature during the propaganda driven days when Doordarshan was the only TV channel in town and Chitrahaar one of the few entertaining shows that one could watch during the course of a week.

The song was shown regularly on Chitrahaar and given that, perhaps a whole generation grew up listening to it. One of the lines in the song is: “naya hai zamana nayi hai dagar, desh ko banaoonga machino ka nagar”. Loosely translated this means that “in this new world we will make India a nation of machines and factories”.

Fifty two years after the 1962 release of Son of India, Narendra Modi was elected as the prime minister of India in May 2014. Modi gave the call of Make in India in August 2014, echoing sentiments of the nanha munna rahi hoon The Make in India website when it was first launched defined it as “a major new national program designed to transform Indiainto a global manufacturing hub.” (I can’t find this line on the website anymore).

The question to ask here is what went wrong during the intervening period between 1962 and 2014? Why are we still talking about aiming to build factories and a vibrant manufacturing sector more than half a century later?

TN Ninan has an answer in his excellent new book The Turn of the Tortoise—The Challenge and Promise of India’s Future. As he writes: “Size helps preserve India as a democracy—it is too big and too complex for any person to so dominate the whole land as to render the law and institutions ineffective, or at least to do so for any length of time.”
Son_of_India_film_poster

While size has helped Indian democracy it has also led to policy errors, which shouldn’t have been made. As Ninan points out: “Successful small countries find it easy, indeed necessary, to focus on export markets because their internal markets are too small to support scale production. But India is big enough to offer the potential of a large domestic market; inevitably, that became the focus of policy.”

The countries of South East Asia also started with import substitution (or producing only for the domestic market) but quickly moved their focus towards exports.

India continued to favour import substitution for much longer and this had its repercussions. “The difference between exporting units and those with a domestic market orientation is that the former have to be competitive, the latter not necessarily so. In India’s case, the inward focus became so pronounced that the country became an economic prison, functioning behind high protective walls. It is therefore evolved into a market for mostly shoddy, usually overpriced goods that would not sell anywhere except countries that were similarly starved of quality goods, such as the Soviet Union, which at one stage was India’s largest trading partner,” writes Ninan.

This put us back in the manufacturing race. And we are still trying to get the manufacturing revolution going. In fact, one of the visions of the Make in India programme is “enhancing the global competitiveness of the Indian manufacturing sector.”

What this tells us is that India is trying to come to the manufacturing party a little too late in the day. Nevertheless, this perhaps remains the only formula for pulling out India’s poor from poverty. And this is only going to happen if the ease of doing business is improved and the inspector raj is done away with, in the days to come.

As Mihir Sharma writes in Restart—The Last Chance for the Indian Economy: “The Indian state is run for its nice, kindly Inspectors, and not for workers or entrepreneurs”. And this needs to be corrected.

The rules and regulations that any manufacturer needs to follow are simply humongous. As Ninan writes: “A policy statement issued in 2011(two full decades after 1991) recognized that the average manufacturing company has to comply with seventy laws, face multiple inspections and file as many as 100 returns in a year. Bear in mind that these returns were being filed (or not filed) by small and medium enterprises that accounted for 45 per cent of manufacturing output and 40 per cent of merchandize exports.”

This is something that the Modi government has improved on after coming to power last year, by introducing self-certification, nonetheless a lot remains to be done on this front.

To conclude, the ball is now in Modi’s court. It took India nearly 70 years to decisively vote for a non-Congress party to power. Modi has the majority to get things done. If he doesn’t, chances are the Congress might be voted back to power. And there can be no bigger tragedy than that.

(Vivek Kaul is the writer of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on Oct 20, 2015

Why cutting interest rates will have little impact on industrial production

 iip
Vivek Kaul 
The index of industrial production (IIP), a measure of the industrial activity in the country, grew by a meagre 2% in April 2013, in comparison to the same period during 2012. The index was expected to grow by around 2.4% (source: India: Weak growth and sticky retail inflation. Sonal Varma and Aman Mohunta, Nomura). In the month of March 2013, the index had grown by 3.4%.
This slowdown of industrial growth reflected in the low IIP number is expected to lead to call for a cut in the repo rate by the Reserve Bank of India(RBI). Everyone from the Finance Minister to business lobbies to business leaders are expected to join the chorus. The logic is that at lower interest rates people will borrow and spend more, so will businesses. This will create demand and thus help revive overall industrial activity and in turn the overall economy. Repo rate is the interest rate at which the RBI lends to banks.
Naina Lal Kidwai, President of Federation of Indian Chamber of Commerce and Industry, told The Economic Times “Consumer durables segment registered one of its highest falls since 2009 and calls for moderation in interest rates to stimulate demand.”
Similar statements were made by Presidents of CII and ASSOCHAM, the other two industry bodies.
But there are several reasons why a cut in interest rate by the RBI may not work.
During the last one year the banks have lent around Rs 83 out of every Rs 100 that they have borrowed. Ideally they should not be lending more than Rs 70 out of every Rs 100 that they borrow. This is because banks need to maintain a cash reserve ratio of 4% i.e. for every Rs 100 that they raise as a deposit, they need to deposit Rs 4 with the RBI.
Banks also need to maintain a statutory liquidity ratio of 23%. For every Rs 100 that banks raise as a deposit, Rs 23 needs to be compulsorily invested in government securities. Government securities are essentially bonds issued by the central and the state governments to borrow money to make up for the difference between what they earn and what they spend.
What this means is that for every Rs 100 that banks raises as a deposit, Rs 27 gets taken out of the equation straight away (Rs 23 as SLR and Rs 4 as CRR). That leaves around Rs 73 to lend (Rs 100 – Rs 27). So in a healthy situation a bank shouldn’t be lending more than Rs 70 out of every Rs 100 that it raises as a deposit.
But as we see above, banks have lent Rs 83 out of every Rs 100 that they have raised as a deposit during the last one year. This means they haven’t been able to raise deposits as fast as they gone around lending money. Hence, interest rates on deposits cannot be brought down because banks need to correct this mismatch between deposits and loans, by raising deposits at a faster rate.
So even if the RBI cuts the repo rate, the question is will the banks be able to match that cut? As explained above that seems unlikely.
But for the sake of argument lets assume that the RBI cuts the repo rate and the finance ministry is at least able to push the public sector banks to cut interest rates. And if public sector banks cut interest rates on loans, chances are even the private sector banks may have to match them to remain competitive.
This may or may not happen, and at the cost of reiterating let me state that I am only trying to make a point here. Lets consider the car industry, which is a very good representation of overall industrial activity. As TN Ninan wrote in a column in Business Standard in January 2013, “The car industry is a key economic marker, because of its unmatched backward linkages – to component manufacturers, tyre companies, steel producers, battery makers, glass manufacturers, paint companies, and so on – and forward linkages to energy demand, sales and servicing outlets, et al.”
As is well known by now car sales have been slowing down over the last seven months. In the month of May 2013, car sales were down by 12.3%. When car sales are down it obviously means that car companies will report lower sales and profits, unless they manage to cut costs dramatically, which is not possible beyond a point. What it also means is that car companies will not produce as many cars as they can given their production capacity. As has been reported on Firstpost, Maruti, India’s largest car maker, did not make any cars on June 7, 2013. This for a company which makes 5000 cars every day.
When a car-maker does not make cars it obviously slows down industrial activity. It also slows down the production of every company which provides inputs to a car company. This ranges everyone from steel companies to paint companies to tyre companies to battery manufacturers to steering manufacturers and so on. And this in turn slows-down the overall industrial activity.
To revive industrial activity, hence it is important that more cars are sold. And more cars will be sold when loans are available at low interest rates, goes the logic. But lets try and understand why this logic doesn’t work hold.
Lets consider the case of an individual who borrows Rs 4 lakh to buy a car at an interest rate of 12% repayable over a period of 7 years. The equated monthly instalment for this works out to Rs 7061. Lets say the bank is able to cut the interest rate by 0.5% to 11.5%. In this case the EMI works out to Rs 6955, or Rs 106 lower.
Even if the bank cuts interest rates by 1%, the EMI goes down by Rs 212 only.
If we consider a lower repayment period of 5 years, an interest rate cut of 0.5% leads to an EMI cut of Rs 100. An interest rate cut of 1% leads to an EMI cut of Rs 200.
So the bottomline is that an individual will not go and buy a car just because the EMI has come down by Rs 100 or Rs 200. There is something else at work here. And the logic that people are not buying cars because interest rates are high just doesn’t hold.
As RC Bhargava, a car industry veteran and the Chairman of Maruti Suzuki India told Business Standard in a recent interview “In India, over 70 per cent of car purchases are financed by banks. An interest rate reduction of, say, one percentage point doesn’t change a person’s decision of buying or not buying a car…With the uncertainties prevalent today, a consumer does not know what his job would be like after a year – whether or not he will have an incremental income, or even a job.”
So people are not buying cars simply because they are insecure and are not sure whether they will be able to hold on to their jobs in order continue paying their EMIs. And given that they wan’t to avoid the risk of defaulting on their EMIs. Hence, cutting interest rates are in no way going to help kick-start car sales. Also, if the logic of cutting interest rates leading to people buying cars does not hold, there is no question of it working for consumer durables as well, Kidwai’s statemnt notwithstanding.
Real estate is another sector which has strong linkages with other sectors like steel and cement. A cut in interest rates will bring down EMIs significantly on home loans. But even with lower EMIs people are unlikely to buy homes. This is because the cost of homes especially in cities has gone up big time. And even the lower EMIs will be very high for most people. Hence the sector continues to be in a dump and is likely to continue to be in one.
Given this, all the talk about lower interest rates improving the industrial activity and in turn economic growth, is at best just talk, and needs to be taken with a pinch of salt.
 The article originally appeared on www.firstpost.com on June 13, 2013 
(Vivek Kaul is a writer. He tweets @kaul_vivek)
 
 
 

Why falling car sales is bad news for almost everybody

car
Vivek Kaul
The great film director Alfred Hitchcock started making films in the early 1920s in Great Britain. This was the era of silent movies. But Hitchcock really came into his own once he moved to Hollywood, where he first made the very dark Rebecca in 1940. For the next twenty years Hitchcock was at his peak churning out one hit film after another. This lasted till he made his scariest movie Psycho in 1960.
Among the many classics that he made during the period was a movie called Rear Window (which Ashutosh Gowariker before he became a director of epic movies tried to copy as Pehla Nasha). The movie tells a story of a photographer Jeff who has broken his leg and is bed ridden. A nurse called Thelma is taking care of him.
Jeff and Thelma are shown to be having conversations throughout the movie. One such conversation is reproduced below.
Stella: You heard of that market crash in ’29? I predicted that.
Jeff: Oh, just how did you do that, Stella?
Stella: Oh, simple. I was nursing a director of General Motors. Kidney ailment, they said. Nerves, I said. And I asked myself, “What’s General Motors got to be nervous about?” Overproduction, I says; collapse. When General Motors has to go to the bathroom ten times a day, the whole country’s ready to let go.
In the conversation above Stella tells Jeff that she had predicted the stock market crash of 1929 which led to the Great Depression, once she figured out that General Motors was in trouble because they were not selling enough and as a result overproducing. 
While Stella’s claim of having predicted the stock market crash was a little far fetched, the conversation in a very simple way shows the clear link that exists between the automobile industry of a country and its overall economy. General Motors got into trouble only when the American economy was in trouble and this in turn added to the troubles of the American economy further. So when car sales are down dramatically it is a reflection of the overall economy being in a bad shape and the stiuation probably worsening in the days to come. 
The domestic passenger car sales in India hit a twelve year low for the month of February 2013 when they fell by 25.71% to 1,58,513 units in comparison to the same month last year. In February 2012, domestic passenger car sales were at 2,13,362 units. This is the biggest decline in domestic passenger car sales since December 2000, when sales had declined by 39.9%.
In fact for the period between April 2012 and February 2013, car sales were down by 4.6%. This is a reflection of the overall state of the Indian economy, which is slowing down considerably. 
Lets look at the points one by one. Household savings have gone down from 25.2% of the GDP in 2009-2010(the period between April 1, 2009 and March 31, 2010) to 22.3% of the GDP in 2011-2012(the period between April 1, 2011 and March 31, 2012). While the household savings number for the current year is not available, the broader trend in savings has been downward. 
So people have been saving lesser over the last few years. A straightforward explanation for this is the high inflation that has prevailed over the last few years. The consumer price inflation for the month of February 2013 stood at 10.91% in comparison to 10.79% for the month of January 2013. Food prices in February 2013 rose at a much faster 13.73%.
People are possibly spending greater proportions of their income to meet the rising expenses due to high inflation and this has in turn led to a lower savings rate. High inflation would not have been a problem if incomes also had been growing at a fast rate. But that doesn’t seem to be the case.
Estimates released by the Ministry of Statistics and Programme Implementation clearly point that out. As a release dated February 7,2013, states “The per capita income in real terms (at 2004-05 prices) during 2012-13 is likely to attain a level of Rs.39,143 as compared to the First Revised Estimate for the year 2011-12 of Rs. 38,037. The growth rate in per capita income is estimated at 2.9 per cent during 2012-13, as against the previous year’s estimate of 4.7 per cent.”
So prices have been growing at a very fast rate and incomes haven’t. In this scenario people have been cutting down on the consumption of high costs items like cars as they struggle to save the same amount of money as they had been doing in the past.
High inflation and lower household savings has also led to higher interest rates, which in turn has meant higher EMIs on automobile loans. This also has had its impact on car sales. And high inflation is here to stay. As Ruchir Sharma, a Managing Director & Head of Emerging Markets and Global Macro, Morgan Stanley Investment Managemen, recently said “The whole issue is that inflation is symptomatic of a wider problem in India.”
What has not helped is the fact that the government borrowing to finance its increased fiscal deficit(the difference between what it earns and what it spends) has also gone up over the last few years. Banks have had a lower pool of money to borrow from because of this and have had to offer higher interest rates to attract depositors. Higher interest rates on deposits have meant higher interest rates on loans and thus higher EMIs. 
But the greater impact has been because of the government deciding to allow the price of petrol and diesel to go up. With the government holding back the price of petrol and diesel for a very long time, prospective car buyers kept buying cars because they were not feeling the pinch of the high cost of fuel. Now any prospective car buyer also needs to take the high cost of fuel into account while making a decision. Since people were not paying the right price for diesel and petrol, this had artificially held up the demand for cars. Now that demand is coming down crashing. The point is that any artificial demand cannot hold up beyond a point. 
What this also tells us is that if the government had allowed the market to operate when it came to fuel prices, auto demand would have not come crashing down as it has, but would have adjusted gradually to a change in higher fuel prices. And you don’t need to be an expert to understand that a gradual adjustment is better than a dramatic fall. 
Now this is just one part of the story which explains why car sales have slowed down dramatically. But there is another part to the story. Slowing car sales also slow down other sectors of the economy as well, and this slows down the overall economy further. As T N Ninan wrote in a brilliant column in Business Standard in January 2013 “The car industry is a key economic marker, because of its unmatched backward linkages – to component manufacturers, tyre companies, steel producers, battery makers, glass manufacturers, paint companies, and so on – and forward linkages to energy demand, sales and servicing outlets, et al.”
In that context the fall of car sales by more than 25% in the month of February 2013 should be a clear sign of worry. Slowing car sales are also a reflection of the fact that people expect the bad times to either continue or to get even worse in the months to come. And this makes them hold onto the money they would have used to buy a car otherwise. It also means that they do not want to commit to an EMI right now. 
Floyd Norris writing in The New York Times explains it best: “New-car sales can be a particularly sensitive economic indicator because few people really need to buy a new car, and thus tend not to do so when they feel uncertain about their economic prospects. Even if a car purchase can no longer be delayed, a used car is an alternative.”
The article originally appeared on www.firstpost.com on March 12, 2013 
(Vivek Kaul is a writer. He tweets @kaul_vivek)