India Struggling With Crisis In Automobile, Real Estate Sector


When people talk about a slowdown they are not necessarily saying that auto sales have stopped growing. What they are instead alluding to is the fact that the rate of growth might be slowing down. This is important for several reasons. For one, the automobile sector contributes about 7% to the country’s GDP and about 49% to the country’s manufacturing GDP. If there was a slowdown in the auto sector, the effects wouldn’t be isolated and the contagion would spread quickly. Tyres, Steel, Headlights, Insurance, Leather — components/industries that are closely associated with the auto industry would all suffer in tandem. In fact, the moment the slowdown in the auto sector became apparent, journalists started scouring the web seeking reasons for the abrupt slowdown.

First, they said it was a weak festive season. The only problem with this explanation was that there was no convincing argument why the festive season was weak in the first place. Then people started blaming the NBFC crisis. Since most automobile purchases are financed by the good folks at Non-Banking Financial Corporations, it is natural for one to presume that the NBFC crunch would inevitably affect automobile sales. Until in April 2019, RBI crushed that narrative, stating that the automobile slowdown could probably be explained by fuel prices and policy decisions. The memo took a mathematical approach to show that the NBFC crisis had no role to play whatsoever and a change in insurance policy could perhaps explain more of the slowdown than a crunch in auto loans.

But what if the slowdown could be symptomatic of a more general slowdown in the whole economy? Could it be possible that the growth engine of this country is losing steam? Meanwhile, there is another strange phenomenon on the rise. In the midst of the rural economic slowdown, there is a migration of over 50 lakh people away from urban centers back to agriculture. This is deeply counterintuitive. If the farm economy is in such deep distress why is it that we see this absurd labour migration?

After the great boom in the early millennium many large real estate developers carved out grand plans for expansion that never really materialized. When their expectations soured they were left with unsold properties that had no real takers in the first place. Instead of throwing in the towel, most developers decided to fight it out. Meanwhile, the interest cost on all that borrowed money that had fueled the real estate binge started spiraling out of control. When they couldn’t deal with the higher interest cost, they started negating it by selling houses at even higher prices. So we had prices of certain properties being driven, not by demand, but by desperate real estate developers trying to protect their margins.

Although it’s not quite clear how this anomaly came about in the first place, it was evident that real estate, as a sector began to lose shine. And that brings us to the final point. How is all of this connected to people moving back to agriculture? Well, with the downturn in construction and real estate, an industry that was primarily responsible for absorbing unskilled labour suddenly had no need for them. And in turn, this had to turn back to agriculture — a profession that had historically fed them, most likely out of desperation.


Please enter your comment!
Please enter your name here