Why India's two-wheeler growth story got derailed?

Titled ‘Inequality Kills', an Oxfam India report recently said that the country’s richest families saw their wealth reach a record high in 2021, while 84% of Indian households saw an income decline during the pandemic.

It is called K-shaped economic recovery, which suggests that the rich are getting richer but the poor are bearing the brunt of the economic disruption caused by the pandemic. This is affecting the purchasing power of those on the lower end of the spectrum. 

So, apart from the gross domestic product or GDP -- which the RBI claims will grow at 9.5% in the fiscal year 2022 -- there are several proxy indicators which may tell us a lot about India’s economic growth. 

One such proxy indicator is the declining sales of two-wheelers. Notably, the sales of two-wheelers in 2021 plunged to their lowest in nine years. 

The average inventory at dealerships currently stands at 50 days against the norm of 25-30 days. 

Economists explain that around 80%-90% of two-wheeler buyers come from lower-income groups. So a protracted slowdown in the sales of such vehicles effectively puts the brakes on the economic recovery in rural India. 

“Two-wheeler sales — a proxy of an economy’s well-being — have been slipping for three years. The consecutive fall indicates that the economic growth, which has been slowing since FY18, is not equitable. The wage growth in rural India — where the majority of the two-wheelers are sold -- has been slowing down and hasn’t kept pace with inflation,” said Devendra Pant, chief economist and head of public finance at India Ratings & Research.

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In fact, the prolonged impact of Covid-19 is being seen across vehicle segments. 

In a recent virtual press conference, Kenichi Ayukawa, president, Siam, explained that in the quarter ended December 2021, passenger vehicle sales touched the lowest point in five years, two-wheelers the bottom in nine years, commercial vehicles (leaving aside 2020) the lowest in five years, and three-wheelers, the worst impacted, tanked to the lowest level in 13 years. The slowdown in the rural economy is largely to blame for the decline in auto sales. 

The most impact is being felt in entry-level segments for both two-wheelers and passenger vehicles. On the other hand, automakers are planning a host of new launches in the premium SUV segment this year. The share of SUVs in the total PVs sold in India was 38% last year, compared to 29% in 2020 and just 16% back in 2016. 

Coupled with the Index of Consumer Sentiments and the rate of employment, the trend in two-wheeler sales offers a useful commentary on India’s unequal growth. 

A recent Business Standard editorial also talked about the need to raise the tax-to-GDP ratio by 5% over time with corrective measures, such as removing tax deductions on investments for individual taxpayers. 

Besides this, India needs to create a sufficiently large manufacturing base for labour-intensive products, which will help us create jobs at scale and improve income levels. 

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