Car sales, a key indicator of overall economic demand, presented a mixed bag during calendar year 2024. Total retail sales grew 9 percent to touch a record 26.1 million units, surpassing the pre-pandemic peak of 25.4 million units in 2018. So, the industry made a full recovery from the lockdown slump. What’s unsettling is the performance of some sub-segments. Growth in passenger vehicle sales fell to a four-year low as car makers struggled to sustain the post-pandemic growth momentum. Preliminary data shows passenger vehicle sales grew at 4.5-4.7 percent—the slowest rate in at least four years—to slightly over 4.3 million units. One could argue that the slowness was partly due to a relatively high base the year earlier. But what’s undeniable is that demand for cars priced under `10 lakh is moderating, reflecting sluggish consumption among a section of urban buyers.
Car sales fell during April-September, but recovered in the October-December quarter, thanks to festive spending. It’s unclear whether the industry can sustain the momentum in the fourth quarter. While the overall passenger vehicle growth slowed, sales of SUVs boomed. Two-wheeler sales also fared well, driven by a favourable monsoon and improved consumer sentiment—registering 16.23 percent growth between January and November 2024 over the same period of 2023, according to the Society of Indian Automobile Manufacturers. On the other hand, demand for commercial vehicles remained below potential despite higher government spending on infrastructure. Clearly, stagnant wages and high inflation are discouraging discretionary spending among middle-income households.
According to estimates based on the Periodic Labour Force Survey, workers’ earnings have declined in real terms over the last decade. This is why India’s consumption story is not looking rosy. Critics insist the government should focus on the demand side, rather than delivering supply-side measures. The Confederation of Indian Industry even suggested the novel idea of handing out consumption vouchers to low-income households to stimulate demand for specific goods and services over a designated timeframe. Above all, the government must consider raising MGNREGA wages and enhancing cash support to farmers under the PM Kisan Samman Nidhi and other similarly-targeted schemes in the forthcoming budget. Without these, higher private consumption and faster growth will elude us.