The Real Story Behind India’s Two Wheeler Sales or Rather the Lack of It

Two wheeler sales are a widely used economic indicator. They give us a good indication of the prevailing spending capacity of the middle class. To put it in simpler words, is the middle class in the mood to borrow and spend money or simply spend money (given that everyone doesn’t take a loan to buy a two-wheeler).

In the last few months, several economists, analysts, journalists, politicians and many Twitter warriors, have cited robust domestic two wheeler sales data to tell us lesser mortals that the economy is well on its way to revival.
But is that really the case?

Two wheeler sales data are reported in two ways. The industry body Society of Indian Automobile Manufacturers (SIAM) publishes sales data every month. The Federation of Automobile Dealers Associations (FADA) also publishes this data every month.

The manufacturers produce the two wheelers and the dealers sell them to the end consumers.

Let’s take a look at the following graph which basically plots domestic sales of two wheelers as reported by SIAM and FADA, for this financial year.

What’s that GAP?

Source: SIAM and FADA.

As can be seen from the chart, there is a wide difference in sales as reported by SIAM and as reported by FADA (The blue bar is bigger than the orange bar throughout). Why is this the case? Let’s look at this pointwise.

1) The only month where SIAM and FADA reported same sales was in April, when the economy was under a lockdown, and the two wheeler sales reported by both the bodies was zero.

2) While both the bodies report sales, what they report are totally different numbers. 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.

In turn, 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.

3) As can be seen from the chart, in every month from May to October, two wheeler sales as reported by SIAM were more than that reported by FADA. As per SIAM a total of 8.04 million units of two-wheelers were sold during the period April to October 2020, or the first seven months of this financial year. This is around 29.8% lower than sales reported by SIAM during the same period last year. Clearly, year on year sales are down even as per SIAM data.

4) As per FADA, the two wheeler sales during the period April to October stood at 4.78 million units, which is 3.26 million units or 40.5% lower than the number reported by SIAM. Cleary, there is a huge difference between the two numbers. One reason for this lies in the fact that the FADA data still does not capture registrations made at RTOs all offices across the country. The states of Andhra Pradesh, Madhya Pradesh and Telangana, are not hooked on to the Vahan 4 system from which FADA draws its data.

This explains a part of the discrepancy but it’s still not good enough to explain the difference of 3.26 million units in the data  between SIAM and FADA.  The difference was more than a million units in October.

5) Why is the difference so huge? What SIAM is counting as sales is essentially inventory getting built up at their dealer level, something that the FADA data does not capture. This explains a bulk of the difference. A good proportion of the two wheeler units which have been sent from manufacturers to the dealers have not been sold to the end consumer.

Companies have been building up inventory with dealers across the country in the hope of good festival season sales. Also, the new Bharat Stage VI emission norms came into force from April 1. This meant that the inventory of two-wheelers at the dealer level had to be built all over again.

In fact, in its October press release, FADA pointed out that the inventory at the dealer level was at its highest in this financial year and it may impact the financial health of the dealers. In September, FADA had pointed out: “Inventory for two wheelers stands at 45-50 days”. It has only gone up since then.

6) Has this strategy of companies piling up inventory at dealer level in the hope of festive season sales worked? The answer to this question will become clearer once we get the November data from both SIAM and FADA, early next month.

Hero Motorcorp has put out a press release saying it has had a good festival season.  As the company points out:

“Despite the severe disruptions on account of the Covid-19 this year, the good retail off-take during the 32-day festival period – spread between the first day of Navratra and the concluding day after Bhai Duj – was 98% of the festive season volumes sold by the Company in the previous year (2019) and 103% compared to the same period in 2018.”

The question is does this apply to the sector as a whole or has Hero Motorcorp simply been gaining market share? The festival season this year was from around the middle of October to the middle of November. The October data as we have already seen hasn’t really been inspiring on the end consumer sales front with a gap of more than a million units in the sales data as reported by SIAM and FADA.

To conclude, two wheeler sales this year have been weak. As we have already seen, they are down 29.8% year on year, as per SIAM. As per FADA, they are down close to 40.3% year on year. This is the real picture of two-wheeler sales in the country and not the one several economists, analysts, journalists, politicians and many Twitter warriors, have been citing to us lesser mortals.

Of course, things may have improved a tad in November due to the Diwali festival. But will that be good enough to pull the industry out of the mess that it currently is in? I have my doubts about that. Also, in the months to come, the pent up demand will get exhausted. Further, one reason people are buying two wheelers these days is to avoid travelling by public transport. This is likely to have played out by the end of the year.

It will be interesting to see what happens next. Meanwhile, it is safe to say that a large part of the great Indian middle class isn’t really in the mood to spend currently like they did in the past.

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 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.


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


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

Indian Economic Growth Data Has Gone the Chinese Way—It’s Not Believable

The Central Statistics Office (CSO) has declared the economic growth, as measured by the growth in gross domestic product (GDP), for the period October to December 2015. During the period India grew by 7.3%.

The economic growth for the period July to September 2015 has also been revised to 7.7%, against the earlier 7.4%. The economic growth for the period April to June 2015 was also revised to 7.6%, against the earlier 7%.

The CSO also said that the “growth in GDP during 2015-16 is estimated at 7.6 per cent as compared to the growth rate of 7.2 per cent in 2014-15”.

The question to ask here is that why doesn’t it feel like India is growing at greater than 7%? Before I answer this question let me reproduce a paragraph from author and economic commentator Satyajit Das’ new book The Age of Stagnation: “In a 2007 conversation disclosed by WikiLeaks, Chinese premier Li Keqiang told the US ambassador that GDP statistics were ‘for reference only’. Li preferred to focus on electricity consumption, the volume of rail cargo, and the amount of loans disbursed.”

This was promptly dubbed as the Li Keqiang index, by the China watchers.

Over the years, lot of doubts have been raised about the official Chinese economic growth data. And many analysts now like to look at high speed economic indicators to figure out the ‘actual’ state of the Chinese economy.

The Indian GDP data also seems to have reached a stage where it is ‘for reference only’. And we probably now need our own version of the Li Keqiang index, to figure out how different the actual economic growth is from the official number.

It is worth understanding here that GDP ultimately is a theoretical construct. One look at the high speed economic indicators clearly tells us that India cannot be growing at greater than 7%.

Let’s first take a look at the data points that constitute the Li Keqiang index. The electricity requirement for the period April to December 2015 has gone up by only 2.5% to 8,37,958 million Kwh, in comparison to the period between April to December 2014.

How does the earlier electricity requirement data look? The electricity requirement between April to December 2014 had gone up by 8.3% to 8,16,848 Kwh, in comparison to the period April to December 2013. What this clearly tells us is that the demand for electricity has gone up by a very low 2.6% during the course of this financial year, in comparison to 8.3% a year earlier. This is a clear indicator of lack of growth in industrial demand. As industrial demand picks up, demand for electricity also has to pick up.

And how about railway freight? Between April to December 2015, revenue earning railway freight grew by 1% to 8,16,710 thousand tonnes, in comparison to April to December 2014. Between April to December 2014, revenue earning railway freight had grown by 5% to 8,08,570 thousand tonnes, in comparison to April to December 2013.

The railways transports coal, pig iron and finished steel, iron ore, cement, petroleum etc. A slow growth in railway freight is another great indicator of lack of industrial demand.

This brings us to the third economic indicator in the Li Keqiang index, which is the amount of bank loans disbursed, an indicator of both consumer as well as industrial demand. The bank loan growth for the period December 2014 to December 2015 stood at 9.2%. Between December 2013 to December 2014 the loan growth had stood at a more or less similar 9.5%. Bank loan growth has been in single digits for quite some time now. In fact, growth in loans given to industries stood at 5.3% between December 2014 and December 2015.

And what is worrying is that bad loans of banks have jumped up. Bad loans of banks stood at 5.1% of total advances as on September 30, 2015, having jumped from 4.6% as on March 31, 2015. The stressed loans of public sector banks as on September 30, 2015, stood at 14.2% of the total loans.

Hence, for every Rs 100 of loans given by public sector banks, Rs 14.2 has either been declared to be a bad loan or has been restructured. In March 2015, the stressed assets were at 13.15%.

Estimates suggest that over the last few years nearly 40% of restructured loans have gone bad. This clearly means that banks have been using this route to kick the bad loan can down the road. It also means that many restructured loans will go bad in the time to come.

Hence, the Indian economic growth story is looking ‘really’ weak when we look at the economic indicators in the Li Keqiang index. There are other high frequency economic indicators which tell us clearly that economic growth continues to be weak.

Exports have been falling for 13 months in a row. Between April and December 2015, exports fell by 18% to $196.6 billion. Non petroleum exports between April and December 2015 were down by 9.4% to $173.3 billion. The bigger point is that is how can the economy grow at greater than 7%, when the exports have fallen by 18%? In 2011-2012, exports grew by 21% to $303.7 billion. The GDP growth for that year was 6.5%. How does one explain this dichotomy?

Between April and December 2015, two wheeler sales went up by 1.05% to 1.42 crore, in comparison to a year earlier. Two-wheeler sales are an excellent indicator of consumer demand throughout the country. And given that the growth has been just 1.05%, it is a very clear indicator of overall consumer demand remaining weak.

In fact, the rural urban disconnect is clearly visible here. Motorcycle sales are down by 2.3% to 97.61 lakhs. Scooter sales are up 11.5% to 39 lakhs. Scooters are more of an urban product than a rural one. This is a clear indicator of weak consumer economic demand in rural and semi-urban parts of the country. Tractor sales fell by 13.1% between April to December 2015 to 4.12 lakh. This is another  indicator of the bad state of rural consumer demand.

One data point which has looked robust is the new car sales data. New car sales during the period April to December 2015, grew by 7.9% to 19.22 lakhs, in comparison to a year earlier. Between April to December 2014, new car sales had grown by 3.6% to 17.82 lakhs. The pickup in new car sales is a good indicator of robust consumer demand in urban areas.

Over and above this, not surprisingly, corporate earnings continue to remain dismal. If all the data that I have pointed up until now was positive, corporate earnings would have also been good.

The larger point is that if so many high frequency economic indicators are not in a good state, how is the economy growing at greater than 7% and how is it expected to grow by 7.6% during the course of this year. What is creating economic growth?

It is worth pointing out here that sometime early last year, the CSO moved to a new method of calculating the GDP. Since then robust economic growth numbers have been coming out, though the performance of high frequency economic indicators continues to remain bad. In fact, some economists have measured the economic growth rate between April and September 2015, as per the old method, and come to the conclusion that the growth is in the range of 5-5.2%, which sounds a little more believable.

To conclude, there is no way the Indian economy can possibly be growing at greater than 7%. Honestly, Indian economic growth data now seems to have gone the Chinese way—it’s totally unbelievable. And since we like to compete with the Chinese, at least on one count we are getting closer to them.

And there is more to come on this front in the time to come.

Stay tuned!

The column was originally published on the Vivek Kaul Diary on February 9, 2016