[pqr]

A study of the recession in the Indian passenger vehicle mass market

India has witnessed negative GDP growth five times since Independence (World Bank data dates back to 1961). Several past recessions were caused by wars or severe droughts, and the latest one was because of a global pandemic. In the early parts of independent India, the farm sector used to account for a major share of GDP. However, in today’s times, it’s the service sector, followed by the manufacturing sector that contributes to a major share of Indian GDP.

Scope
Pre-pandemic years 2000-2019

Definition
A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters

Findings

• The Indian economy has not faced a recession during the 2000-2019 period
• However, there were periods of relatively slow GDP growth (2000 to 2002, 2008, 2011 to 2013, and 2017-2019)
• The mass market passenger vehicle industry grew by an 8.3% CAGR between 2000-2019
• The mass market passenger vehicle industry has experienced five recessions during 2000-2019
• Passenger vehicle mass-market recession is triggered when India’s GDP growth hovers around 5%
• A GDP growth rate of less than 4% in the Indian economy has always resulted in a recession in the Indian passenger vehicle market
• There was some lead or lag between slow GDP growth and the Indian passenger vehicle mass-market recession

Source: Autopunditz

[Jeroen]

Thanks for sharing. I am trying to figure out what the bottom graph means. A positive percentage means the vehicle market growths obviously. As this graph also shows negative growth it means the vehicle market shrinks. But market size and vehicles sold are two different things all together.

Market size is also not that relevant to have some idea about number of units sold.

I don’t think it comes as a surprise there is a correlation between GDP growth and car market size or actual numbers sold. Mind you, more and more economists appear to moving away from GDP as the overall economy indicator.

I have always thought it fascinating that a country such as India requires such high growth rates. 4% growth in most western countries means you are doing extremely well.

Most economists appear to use the definition of recession of two consecutive quarters of negative GDP growth. Although I don’t think there is an universally accepted definition of a recession these days.

Jeroen

[naru80]

Originally Posted by pqr

A study of the recession in the Indian passenger vehicle mass market

This data seems to be only for historical purposes since auto numbers are till 2019. There has been a tremendous change since, including the pandemic and the smart recovery. Automakers themselves and their industry body SIAM and dealer association FADA release monthly data (analyzed each month on tbhp).

Originally Posted by Jeroen

I am trying to figure out what the bottom graph means.

The bottom graph shows the pain in the auto industry in 2018-19. I remember every automaker was pleading with the govt for some relief/concessions in those days.

Originally Posted by Jeroen

As this graph also shows negative growth it means the vehicle market shrinks.

Not necessarily. I think it just means the growth rate of the number of units sold turned negative. Think of it in these terms: 100 cars were sold in January 2018 and 90 were sold in January 2019. Which means there was a 10% reduction in sales. This data is just measuring the pace of growth (or new additions) and not the size of the market.

The size of the market may well be: 90 (year 1) + 100 (year 2) + 95 (year 3). It's still growing but the pace of growth declined in year 3.

Originally Posted by Jeroen

I don’t think it comes as a surprise there is a correlation between GDP growth and car market size or actual numbers sold. Mind you, more and more economists appear to moving away from GDP as the overall economy indicator.

Auto sales is one of the high frequency indicators of the health of the economy. The logic is that more cars sold is a sign of more prosperity. Similarly, tractor sales are an indicator of the agricultural economy and two-wheeler sales are a barometer for the health of the rural economy. And GDP (despite all its flaws) is still the universally accepted measure of economic performance.

Originally Posted by Jeroen

I have always thought it fascinating that a country such as India requires such high growth rates. 4% growth in most western countries means you are doing extremely well.

The base is low. India (and others in the same league) have to grow faster to catch up with the developed markets. India is still a "developing" (or, to be more politically correct, "emerging") economy. It needs to grow at more than 10% for many, many years to achieve the same standard of living as the West.

Originally Posted by Jeroen

Most economists appear to use the definition of recession of two consecutive quarters of negative GDP growth. Although I don’t think there is an universally accepted definition of a recession these days.

Recession is a "significant, widespread, and prolonged" downturn in economic activity. Because recessions often last six months or more, one popular rule of thumb is that two consecutive quarters of decline in GDP. It's not an exact formula.

[Mustang_Boss]

Till 2012/13, India was never exposed much to globalization. The exposure was contained and minimal, when compared to other north east asian countries. Hence, we never have faced an actual economic recession.

India's Exposure to the west increased drastically in the past couple of years. As an added benefit, Crude fell to historic lows aiding india's progress. This crude price shift enabled the government to be liberal to some extent and hence we have too many mobile phones in everyone's hands. i mean, the government facilitated imports and adoption of tech as the disposable $$$ with the country were at sufficient levels.

Considering the current exports/imports data, if a recession hits the west in line with 08/09 levels, we are going to see some crisis in our domestic markets. The charts shown above are too good in my books. Because, if a true recession hits the west, our numbers are going to be much much worse. I Wouldn't be surprised if they are 10-20X of the past recessions.

The above numbers are just a mere representation. Today's Reality is different and things will move much faster and worse i think. Guess what's india's biggest manufacturing industry is? Its Auto's.

Many of my friends argue "it never happened in the past and it wont happen now." But, the reality we are in is different today. In 10/11, india's mobiles imports were hardly 2B$? maybe. Today they touch 60+ B$. We were able to afford them because, our crude bill fell sharply since 14. If the crude rises to 120+ and sustains there, How is the nation going to pay? please also consider, our crude consumption grew from 2.2 Mill barrels per day to 5 Mil barrels per day.
I have no idea how bad this is going to be this time and the numbers don't match at all for me.

I am open to listen to others point of views too.

[man_and_machine]

The auto industry in India is not driven only by the salaried class, so interest rates and changes in macro conditions that affect credit only affect a small portion of the demand. That is maybe a bit different from other economies. Take all the launches in the past 1 year and compare the promised (not real) delivery schedules. Each good selling model on a average has 4 - 6K dispatches a month, yet the waiting periods which is a proxy for demand given the constant fixed supply is 10+ months.
So demand seems to be strong, this is dispite all other growth metrics, and indicators. We are a very insulated economy. The only thing that swings directly with the global indicators is the equity market, since that has the maximum direct exposure to foreign money and interest policies.
The last downturn was economic cause driven, the effects were deep, were felt a little in India too, but not as much as the mature economics. There is a lot of what is called the rubber band effect in our economy. The money flow is controlled by more than just demand here. Govt, buffers, freebies, lax taxation implementation, cash economy, local credit, huge unorganised labor market, subsidies etc, all ensure that each rupee hop is not function of last source plus a predictable function controlled by interest rates, fiscal policies etc.
Surely, those sectors exposed to funding like PE, VC, Corporate loans are feeling the heat, but together they form a tiny factor in the economy. They make big news, but little effect on the local economy.
I haven't heard on anyone in my circles yet, that is postponing their car buying decision due to a recession. What I have heard is they are postponing because they are not able to get what they can pay for.