Skip to main content

How car economics explains India's higher-growth-higher-inequality paradigm

By Prasanna Mohanty 

Somewhat like ‘thalinomics’ of Economic Survey of 2019-20, which measured household incomes and “dosa economics” of Raghuram Rajan in 2016 to explain inflation, ‘car economics’ explains the higher-growth-higher-inequality paradigm.
On January 11, 2023, the Union Cabinet renamed the “free” ration scheme for 62.5% households or 813.5 million people, rolled out from January 1, 2023, as the Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY). Until then, these 62.5% households received “subsidized” ration under the National Food Security Act (NFSA) of 2013. Now, the central government has appropriated all claims to “free” food (to which state governments contributed earlier) “to remove the financial burden of the poor and the poorest of the poor”.
The official poor count then stands at 62.5% of Indian households or 813.5 million Indians.
In sharp contrast, January 2023 also distinguished itself by some historic news of a different kind. One after the other Germany carmakers, Merce Benz and BMW, announced historic high sales of their luxury brands in 2022. Mercedes Benz said it registered 69% growth in sale of its luxury cars and declared to introduce 10 new models in 2023, most of them over Rs 1 crore price category (including super luxury Maybachs). The BMW registered 37% higher sale of its luxury cars, introduced three new models before 2022 ended and lined up five more for January 2023 release. Indian women too have taken to buying more luxury cars.
The apparent contradiction between the two – “free” food for 62.5% households and the remarkable rise in sale of luxury cars – escaped media, a key stakeholder in the state of the economy, and the central government, which shapes economic policies and is about to present its next budget.
Amidst all this, on January 6, 2023, the First Advance Estimate (AE1) of National Income 2022-23 was released, declaring 7% ‘real’ growth for FY23 (‘nominal’ growth of 15.4%) – more than 6.8% that the RBI estimated. Now, the government can retain the bragging right of India being the fastest growing major economy in the world for the second year running.

Post-pandemic shift to luxury cars

The news of historic high sale of luxury cars in 2022 hides a more disturbing development.
The latest data on wholesale of automobiles in the country, which the Society of Indian Automobile Manufacturers (SIAM) released on January 13, 2023, shows the sale of luxury cars continue to outstrip that of entry-level and low-end cars for the second successive fiscal year of FY23 (April-December 2022).
The SIAM data shows, in FY22, the sale of high-end utility vehicles (UVs) – which includes SUVs and luxury brands like Mercedes Benz and BMS – overtook entry-level and low-end passenger cars (PCs) by 22,122 units in FY22. In FY23 (April-December 2022), the sale of UVs has gone past PCs by 1.7 lakh units. 
By the time the fourth quarter of FY23 ends, the lead would be far higher. The FY22 saw the GDP growing at 8.7%, enabling India to reclaim (it had become so in 2015) the tag of fastest growing major economy in the world.
What this means is that high GDP growth is leading to higher income and wealth inequality – not higher prosperity of all.
There are other disturbing trends that the SIAM data reflects.
  • Total sale of automobiles (UVs, PCs, commercial vehicles, two and three wheelers etc.) have been steadily falling from FY19 (262.7 lakh units) to FY22 (175 lakh units). If the three quarters’ sale of FY23 is extrapolated to the full fiscal, the numbers would still fall short of the FY19 level.
  • Sale of commercial vehicles, which reflects commercial activities, fell from 10 lakh units in FY19 to 7.2 lakh in FY22. At current level of FY23, the sale for the entire fiscal would remain below FY19 level.
  • Sale of two-wheelers, which reflects how those at the lower end of the economic pyramid are doing financially, has been steadily falling from 211.8 lakh units in FY19 to 134.7 lakh units in FY22. At the current level of sale in FY23, the two-wheeler sale will likely remain below FY17 to FY20 levels.
  • The only bright spot is the sale of passenger vehicles (PVs) – which includes PCs, UVs and vans. At current level, it is likely to register a new record by surpassing previous sales. It is the sale of luxury vehicles (UVs) which is propelling this growth.
All the above trends reflect a skewed growth where (i) those at the tip of the economic pyramid are getting richer but those at the middle and lower layers are getting poorer and (ii) the GDP growth may be higher but the economic activities are yet to reach the pre-pandemic FY19 level.
The situation is far worse than what the above numbers suggest because, don’t forget, India added 53 million to its population since FY19 (National Accounts Statistics).
The two graphs above map these developments (using the SIAM data), in which the FY23 numbers are actual numbers for the first three quarters (April-December 2022).

Response of RBI and FinMin to auto sales

There is an interesting paragraph in the RBI’s latest bulletin (December 2022).
It reads:
“In a must-read speech titled The Logic of Monetary Policy14, Ben Bernanke draws the analogy of the economy as an automobile, the Committee as the driver, and monetary policy actions as taps on the accelerator or brake…”
It then goes on to explain it and frequently uses “car” for “automobile”. But when it comes to looking at the car or automobile sales the same attention is missing. It misses not only the drastic fall in auto sales it also misses the inversion in car sales (UVs overtaking PCs). Its November bulletin had made a grudging acknowledgment of the inversion, but not the fall in auto sales. It stopped short of stating the obvious (fall and inversion). It said the sales of automobiles was “propelled by demand for sports utility vehicles (SUVs) and mid-segment cars” in October and that the sales of entry level cars “reversed” to below pre-pandemic levels. The previous bulletins had missed even this although these two developments went back to more than a year.
The Finance Ministry also tracks auto sales for its Monthly Economic Report (MER).
In its last MER (November 2022) it said: “Higher incomes, among others, have led to increased sales of passenger vehicles, two and three-wheelers and tractors by a good year-on-year margin in Oct-Nov.” It showed a 28% growth in the sale of passenger vehicles (PVs) for October 2022 over October 2021.
There is no mention of the two dominant features of auto sales in India – thereby, missing the big picture of an ongoing economic crisis and rise in inequality. Studies have shown unless inequality is addressed, growth can’t be sustained for long.

Rising wealth of the top 1%

Surely, ‘car economics’ is not adequate to explain the inequality. Therefore, here is how the Credit Suisse’s Global Wealth Report 2022 presents the growth in inequality in India.
What the graph shows:
  • Wealth share of top 1% is steadily climbing – from 33.2% of the total national wealth in 2000 to 40.6% in 2021.
  • Gini Coefficient, which measures wealth inequality (on a scale of 0% to 100% in which 0% represents perfect equality and 100% represents perfect inequality) is rising too – from 74.6% in 2000 to 82.3% in 2021.
---
Source: Centre for Financial Accountability

Comments

TRENDING

A Hindu alternative to Valentine's Day? 'Shiv-Parvati was first love marriage in Universe'

By Rajiv Shah*   The other day, I was searching on Google a quote on Maha Shivratri which I wanted to send to someone, a confirmed Shiv Bhakt, quite close to me -- with an underlying message to act positively instead of being negative. On top of the search, I chanced upon an article in, imagine!, a Nashik Corporation site which offered me something very unusual. 

'Flawed' argument: Gandhi had minimal role, naval mutinies alone led to Independence

Counterview Desk Reacting to a Counterview  story , "Rewiring history? Bose, not Gandhi, was real Father of Nation: British PM Attlee 'cited'" (January 26, 2016), an avid reader has forwarded  reaction  in the form of a  link , which carries the article "Did Atlee say Gandhi had minimal role in Independence? #FactCheck", published in the site satyagrahis.in. The satyagraha.in article seeks to debunk the view, reported in the Counterview story, taken by retired army officer GD Bakshi in his book, “Bose: An Indian Samurai”, which claims that Gandhiji had a minimal role to play in India's freedom struggle, and that it was Netaji who played the crucial role. We reproduce the satyagraha.in article here. Text: Nowadays it is said by many MK Gandhi critics that Clement Atlee made a statement in which he said Gandhi has ‘minimal’ role in India's independence and gave credit to naval mutinies and with this statement, they concluded the whole freedom struggle.

Attack on Gaza: Western media 'went out of the way' to obscure, protect perpetrators

By Sonali Kolhatkar*  Israeli forces killed more than a hundred Palestinians and wounded more than 700 on February 29, 2024 during a distribution of food aid in Gaza city, pushing the Palestinian death toll to 30,000 since October 7, 2023. The food aid massacre was straightforward in its deadliness as armed Israeli forces aimed weapons at desperate, hungry Palestinian civilians and killed many of them. It was also plausible within the context of who has firepower and who doesn’t, and wholly consistent with Israeli atrocities, especially those committed since October 7, 2023.

Living standards in 'model' Gujarat worse than major states: Govt of India document

By Rajiv Shah  Amidst raging controversy over whether the latest Government of India’s “Household Consumption Expenditure Survey 2022-23 Fact Sheet: August 2022-July 2023” suggests that India’s poverty levels are actually down to 4.5 to 5%  during the decade-long Narendra Modi rule, a state-wise breakup in the 27-page document shows that “model” Gujarat’s average consumption expenditure is far below most of the so-called developed states.

India second best place to invest, next to UAE, yet there is 'lacks support' for IT services

By Sreevas Sahasranamam, Aileen Ionescu-Somers*  The United Arab Emirates (UAE) is the best place in the world to start a new business, according to the latest annual Global Entrepreneurship Monitor (GEM) survey. The Arab nation is number one for the third year in a row thanks to a big push by the government into cutting-edge technology in its efforts to diversify away from oil.

Not livable in summer, Chitrakut PM-Awas houses 'push' tribals in moneylender trap

By Bharat Dogra*  Those who are in-charge of implementing the PM-Awas scheme of rural housing can rightly take pride in what has been achieved in Dafai hamlet (Karvi block, Chitrakut district, Uttar Pradesh). All the Kol tribal families here are extremely poor and vulnerable. In a rare achievement, almost all of them have received housing assistance under PM Awas. 

Stressing on standardisation, efficiency, capitalists 'intensify' workers' exploitation

By Bhabani Shankar Nayak*  The productivist ideology lies at the core of the profit-making pyramid of capitalism. It perpetuates a relentless cycle characterized by busy schedules, workplace tension, an imbalance in work-life equilibrium, and a pervasive sense of alienation. 

Development? This tribal hamlet in Chitrakut has no toilets, no electricity connections yet

By Bharat Dogra*  As we moved away from the starting point of the Bundelkhand Expressway and a famous pilgrimage site into a side-road, the hills of Chitrakut here appeared to be more and more isolated. Another turn, and we appeared to have reached almost a dead-end. However it is here that over 80 households of the Kol tribal community have been living for a long time.

WTO 'loses legitimacy': CSOs shut out of normal participation in MC13 at Abu Dhabi

By Deborah James  Given unprecedented repression of participants, the 13th Ministerial Conference (MC13) of the World Trade Organization (WTO) at Abu Dhabi should not continue until historical and international standards and human rights for participation in global governance are restored.

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".