A Rare Economic Indicator Which Has Held Steady...

Falling auto sales have been one of the starkest indicators of the slowdown gripping the Indian economy. Sales of most automobile categories, from two-wheelers to passenger cars and commercial vehicles, have weakened suggesting pressure on different segments in the economy.

This slowdown in auto sales, however, has not made a significant dent in consumption of petrol.

Petrol volumes have exhibited positive growth for 21 consecutive months, growing by 11.3 percent in May 2019 over a year ago, according to data from the Petroleum Planning & Analysis Cell. The consumption of petrol for the last 12 months registered a growth of 8.8 percent over the same period a year ago, the data shows.

Diesel consumption exhibited a more modest pace of growth at 2.8 percent in May 2019, according to PPAC. For 12 months from June 2018 to May 2019, diesel consumption grew by 3.2 percent annually.

This was despite a contraction in auto sales, which impacts petrol and diesel consumption. Auto sales fell for the sixth straight month, contracting by 8.6 percent in May 2019 on an annual basis, according to data from Society of Indian Automobile Manufacturers. For the trailing 12 months, auto sales grew 1.3 percent.

Vehicle registrations, measuring the number of new vehicles on the road, have also continued to decline after a seasonal pick-up in December on account of year-end discounts. It contracted by 5.4 percent in May 2019, according to data from the Ministry of Road Transport and Highways.

Petrol is consumed almost entirely as fuel for passenger cars, taxis, two- and three-wheelers, while diesel is used as fuel for road transport, aviation, shipping, railways and in agriculture and captive power generation.

Despite this evidence of a fall in both wholesale and retail auto sales, petrol volume growth has been strong.

The severance of the link between the two may be explained in part by the fall in global crude oil prices, thereby reflecting in lower retail prices of petroleum products, said Madan Sabnavis, chief economist at Care ratings. Sabnavis, however, said that consumption of petrol and diesel tends to be relatively inelastic to price changes.

As such, the divergence between auto sales and petrol volumes may also indicate that buyers continue to drive their existing vehicles instead of making a new purchase, said Sabnavis. Increased insurance cost, high ownership cost and interest costs, along with the liquidity crunch in the market, continue to weigh on fresh purchases of automobiles, stated a June 13 research note by CARE Ratings.

The trend can also be explained in part by diesel vehicles becoming unattractive, said Probal Sen, analyst at Centrum Broking Limited. “The divergence in growth between the auto industry and consumption of petrol can be explained in part as consumers are switching from diesel vehicles to petrol,” Sen said.

Within the automobile segment, the sale of diesel vehicles has been hit harder than that of petrol, Sen said, adding that may explain why diesel volume growth has been more sluggish as compared to petrol.

An industry consumption review by the PPAC for May 2019 also stated that the upcoming BS-VI emission norms, uncertainty over shift to electric vehicles, weak customer sentiment due to uncertain job environment and the general elections affected auto sales. Improving public transportation systems and increasing presence of cab aggregators are also seen as possible reasons for lower sales growth for automobiles.

However, improved road connectivity, cumulative growth in number of passenger vehicles on road and increased movement by road has been leading to growth in petrol sales, stated the industry consumption reveiw by the PPAC for May 2019. Campaigning for the general elections and onset of tourist season across the country, also contributed to higher consumption in May, it added.

Diesel consumption, in contrast, may have also been hit by slowdown in the manufacturing industry, said the PPAC report