Why even an economic growth of 6.6% is not believable

The gross domestic product (GDP) figures for the three-month period of October to December 2018, came in today (Feb 28, 2019).

The Indian GDP grew by 6.6%, the slowest in five quarters. In fact, even a growth of 6.6% seems to be on the optimistic side, given that this is not in line with the underlying economic fundamentals, which can be measured through high-frequency economic indicators like car sales, two-wheeler sales, tourist arrivals, railway freight movement, etc.

Let’s try and get some sense of what the economic indicators looked like in the three month period between October to December 2018.

In this piece, the yearly growth of 15 high frequency economic indicators has been looked at. These indicators include (and as can be seen from the accompanying table, which is in two parts) indicators like car sales, two-wheeler sales, commercial vehicle sales, non-oil exports, non-oil non-gold non-silver imports, revenue earning rail freight, among others.

The performance of 11 out of the 15 economic indicators was much better during the period October to December 2017 than it was in October to December 2018. This basically means that the yearly growth of most economic indicators was better during the same period.

In simple English, what this means is that the Indian economy has slowed down during the last quarter. Will this reflect in the government GDP numbers? That is something we will come to know later this week.

These indicators are real time economic indicators and not a theoretical construct like the GDP number. Also, in a scenario where India grew by 8.2% during 2016-2017, the year of demonetisation, it makes more sense to trust real time economic indicators more than the GDP number declared by the government.

Let’s take a closer look at some of these indicators. Take car sales, the most cited indicator among these indicators. During the period October to December 2018, car sales fell by 0.79% in comparison to October to December 2017. In fact, car sales had fallen by 2.42% during July to September 2018.


Why are car sales important? That’s because they have been an important indicator of how urban India is feeling about its economic prospects. At the end of the day, no one is forcing an individual to buy a car. She buys a car only when she feels that she is in a position to service the EMI on the car loan taken to buy the car or make a down-payment.

The fact that car sales have been falling tells us that urban India isn’t really feeling strong about its future economic prospects.

Car sales also have very strong forward and backward linkages. When cars sell well, there is greater demand for steel, rubber, paint, glass, batteries etc. These are the backward linkages. A whole host of sectors do well, when cars sell well. The vice versa is also true.

As far as forward linkages of car sales are concerned, a growth in car sales leads to an increase demand for loans, servicing centres as well as energy consumption. As we can see from the accompanying table, consumption of petroleum products went up by just 2.21% during the period October to December 2018, in comparison to a year earlier. This is again a clear impact of slowdown in car sales.


Other than cars, a slowdown in scooter sales between July and December 2018, also tells us that urban India is not feeling too comfortable about its economic prospects.

While scooter sales growth remained slow, the motorcycle sales growth seems to be on a recovery path. Between October and December 2018, it grew by 11.11%.


This along with the fact that tractor sales during the same period grew by 22.24%, tells us that the rich part of rural India is feeling economically confident.

The same cannot be said the agriculture sector as a whole, with fertilizer production falling 9.1% during the period.


As far as consumer demand is concerned, non-oil non-gold non-silver imports, which are a very good indicator of consumer demand, grew by just 0.35% between October and December 2018. Tourist arrivals also grew by just 1.73%, in comparison to 14.81% a year earlier, which will act as a dampener on consumer demand.


The production of steel grew by 4.64% during the period. A slowdown in car sales as well as a real estate sector which hasn’t gone anywhere in many years, went against the sector.



What helped is the healthy pace of road construction. Between April and November 2018, 5,579 kilometres of highways were constructed, against 4,942 kilometres, during the same period in 2017. Road building also gave a fillip to cement production, which jumped by 13.33%.


Exports remained weak during the period. Non-oil exports, which tend to benefit a large number of companies in comparison to oil exports, where the benefits are concentrated, grew by just 1.19%. Revenue earning rail freight saw a slight improvement in growth at 5.92%.

Commercial vehicle sales grew by 6.7%, the slowest in six quarters. A fast growth in commercial sales indicates a robust activity on the infrastructure and industrial front. This is seen as a lead economic indicator of industrial as well as infrastructure activity. This is also borne out by data from Centre for Monitoring Indian Economy. During October to December 2018, the new projects fell by 24.14%. Completed projects fell by 8.35% and the stalled projects went up by 246.89%.

All this comes together in the form of a major slowdown in central government revenue receipts, which grew by just 0.48% during the period, with the government also feeling the heat of the economic slowdown.

All these economic indicators come together to tell us that the Indian economy has slowed down during the period October to December 2018. Whether this is captured in the GDP data which will be released on February 28, remains to be seen. In this scenario, even an economic growth of 6.6% doesn’t seem believable.

In the recent past, the Indian GDP data has become more or less a joke. Let’s see if that continues or things do improve on that front.


Vivek Kaul is a Business Insider India contributor. Kaul is an economist and the author of the ‘Easy Money’ trilogy.

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