In line with our observation of the declining trend in household purchases of cars and two-wheelers, resulting in the recent poor growth auto sales, a view is gradually gaining ground that the auto bubble of the last few years has burst. The total production of automobiles went up by a meagre 1.2% in 2012-13 over the last year while there was negative growth in sales of passenger cars (6.7%) and marginally higher sales for two-wheelers (3%) over the same period. All this seems to corroborate the hypothesis. The breakup of private consumption expenditure data reveals that while the percentage share of personal transport equipment in total private final consumption expenditure has gone up from 1.6% in 2008-09 to 2.1% in 2011-12, the percentage share of expenditure on operation of personal transport equipment has gone down from 5.6% to 5.1% during the period.
It is also a fact that despite a continuous rise in gold prices in the last two years, the precious metal has occupied the numero uno spot in the consumption expenditure of households (including its import), which implies that the funds earmarked for purchase of vehicles have found an alternate channel. For the middle-income group, this phenomenon appears to be backed by a plausible reason. With a number of new car manufacturers setting up their facilities in India, resulting in supply improvement, the secondary car market has received a jolt. Thus, compared to automobiles, gold reserves provide a better option for the rainy day. The continuing high rate of interest on loans has also inhibited sales of cars and two-wheelers by this income group as it has affected the real estate market.
As regards the operating cost of asset ownership, cars and two-wheelers are showing an increasing cost element with decontrol of petrol and diesel prices as opposed to holding gold assets. A recent survey has also shown, albeit inconclusively, that owning a car is no longer considered a status symbol as it was only a few years back with designs, shapes and features of various models varying widely, making the owner indecisive of the symbolic standards.
No firm data is yet available on the relationship between per capita income of a country and the consumption of white goods, including cars and two-wheelers. Between 2010-11 and 2012-13 , India?s per capita income (at constant prices) has gone up from R41,627 to R45,211, an annual average rate of only 4.2%. Even recognising the fact that per capita income may not be taken as a proxy for the capability of a particular segment to own assets, the sturdy growth rate in the level of per capita income definitely signals the existence of a large proportion of people below the poverty line.
In all probability, the growth phase of the auto sector is bound to resurface in the coming years in India as the positives still outweigh the perceived risks and impediments, and as the middle-income group?s penchant for owning a mobile asset continues to impress the class.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal