November ushered in some good news for the Indian economy, especially if automobile sales are a barometer.
Two-wheeler and car sales rose as customers took advantage of improved economic activities and income, along with the release of pent-up demand from lockdown days combined with annual festive purchases.
Also contributing to a positive outlook is the rise in Goods and Services Tax (GST) collected by the central government in October, which crossed the trillion rupees mark for the first time since February this year.
Hero Moto Corp sold 806,848 scooters and motorcycles in October, the highest ever sales in a month in the company’s 34 years. Sales were 35% higher compared with October 2019, when it sold 599,248 such vehicles. Hero attributed the success to “a positive turnaround in customer sentiment, and a creditable resumption of supply chain, logistics and business operations.’’
Traditionally, many Indians make their annual purchases during the month that begins with Navratri and culminates with the celebration of Diwali, which falls on November 14 this year. Countrywide and localized lockdowns between the end of March and June-July also held back many planned purchases, which may be taking place now.
Hyundai Motor India said it clocked its highest-ever domestic sales of 56,605 cars, or a 13.2% rise in sales over October 2019. The earlier highest monthly domestic sales number was in October 2018 when it sold 52,001 cars.
Bajaj Auto Ltd, the world’s third-largest manufacturer of motorcycles, said it sold 11% more two-wheelers and commercial vehicles, compared with 10% growth in September. TVS Motor Co. motorcycle sales grew 22% to 394,724 in October compared with 323,368 a year earlier.
Finance Secretary Ajay Bhushan Pandey told journalists that e-way bills, or electronic permits for goods movement, for October were higher by 21% over September and 11% over October 2019, reflecting improved economic activity.
The Purchasing Managers’ Index (PMI) for manufacturing rose to 58.9 in October, from 56.8 in September, which according to HIS Markit India, pointed to the strongest improvement in the health of the sector in over a decade.
Employment, however, remained at lower levels partly because of the government requirement to ensure sufficient distancing during the pandemic.
Still, it may be too soon to celebrate, say economists.
From the April 1 beginning of the financial year, Hero Moto Corp is still falling short on sales. It sold 3.18 million scooters and motorcycles between April and October this year compared with 4.14 million in 2019. Bajaj Auto sold 2.10 million vehicles between April and October, compared with 2.88 million during the same period a year earlier, or a 30% drop.
The Indian economy contracted by 23.9% in the first quarter ended June 30. Gross domestic product (GDP) data for the second quarter ended September 30 will be released on November 30. Economists expect GDP to further contract through the remaining quarters and shrink by close to 10% in the full year ending March 31, 2021.
It was only during September and October that the GST was higher compared with the same months a year ago. GST collections since April were significantly lower compared to the year ago. In April, GST collection fell to almost 30% of the April 2019 collections.
“Going ahead, how quickly do the collections revive and make up for the contraction witnessed in the first half of the financial year will be carefully watched,’’ Motilal Oswal Financial Services said Monday. “We still expect GST collections to come in at 9.2 trillion rupees as against the budget estimate of 13.8 trillion rupees.’’
Even hitting the pre-Covid levels would not be an achievement worth marking as the Indian economy has been grinding down since the 2016 poorly planned and implemented demonetization of 86% of currency notes in circulation.
Even before the economy could recover from this shock, the GST was implemented without adequate preparations, hurting mainly small and medium-sized companies. India’s GDP grew 4.2% in the year to March 2020, a far cry from 7.6% achieved in the year to March 2016.
Rating agency ICRA in an October 20 commentary said even though nine of the 15 non-financial critical economic indicators recorded growth in September, the remaining five posted a narrower contraction in that month.
ICRA cautioned that the sustainability of the upturn is unlikely to be universal and that while fatigue may drive festive season sales, the momentum may subside soon thereafter.
“Overall, we await signals of the durability of the nascent upturn that emerged in September 2020,’’ said Aditi Nayar, principal economist at ICRA.
With inflation at an elevated level of close to 7% and facing a revenue shortfall, the government may have little option but to raise taxes on petrol and diesel, which will hurt consumption directly and immediately. Such measures would almost certainly put a brake on consumer spending in the coming months.
Rising unemployment is also a drag on growth. The Centre for Monitoring the Indian Economy (CMIE) said the unemployment rate rose to 6.98% in October compared with 6.67% the previous month, with joblessness in rural areas rising significantly.
In its September report, CMIE said 6.6 million jobs were lost between May and August. In April, 121 million jobs were lost because of the lockdown, many of which were recovered by the end of August though economic conditions deteriorated.