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Passenger vehicle sales benefit from demonetization base effect in 2017

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The market suffered a chronic dismay and disorientation from demonetization in the year of 2016; consequently, a staggering inflation rate. Coming out of this dismay, however, in mid to late 2017, we entered a phase of distortion in understanding of inflation by the consumers, a phase better known in economic terms as a low base effect.

In plainer terms, in 2016 the impacts of demonetization were such severe, that consumers were highly demotivated to invest in purchase of  auto-mobiles. In 2017, eventually walking off the impacts of 2016, but not completely forgetting it, the consumers embraced an illusion of a more stable and consumer-friendly market, whereas in reality the inflation rates continued to grow. However, owing to this misconception, the low base effect, consumers in their judgment, found it more lucrative and beneficial to resume their investment thoughts in the automobile industry. Thus, as a result, the fiscal year 2016-2017 registered an aggregate growth in the whole of vehicle sales across all registered categories by 36.39 per cent, with a total sales of 16,66,646 units from 12,21,969 units ( in December 2016.)

Across all categories of vehicles sales, domestic passenger vehicles and commercial vehicles rounded up the maximum sales; the most suffered category was the domestic car sales. Some essential commodities used in manufacturing of domestic cars like, steel, aluminium, natural rubber and copper rose sharply in 2016-2017 tenure. For example, by mid 2016, the copper price rose by almost 26 per cent. Additionally, petrol prices remained same and were expected to increase. All these factors added up to a higher price tagging of vehicles and a greater on-road running cost.

Post the economy's recovery from invalidation of high-value currency notes, government organizations and personal business owners ( the major consumers of domestic passenger vehicles and commercial vehicles ) gained much confidence and reliability as consumers, allowing them to accept with trust the increased automobile costing. The individual household units ( the major consumers of domestic cars) however, having mainly convenience and luxury needs over revenue generation from vehicles, weren't as much motivated to consider expenditure on vehicle purchase. Owing to these factors, Indian domestic passenger vehicle sales rose by 5.22 per cent to 2,39,712 units in the month of December, 2017, from 2,27,823 units in December 2016. In December 2017, the commercial vehicle sales went up by 56.62 per cent. And the category tragically falling prey to the ill-influences of inflation, domestic cars, suffered a marginal fall in sales with 1,58,326 units in December, 2017, as compared to 1,58,617 units in December, 2016.

During the fiscal year 2016-2017, benefiting from the low base effect, other categories spiked up their sales as well, with two-wheelers taking a sales jump of 41.45 per cent, from 910,276 units to 12,87,592 units, and car sales rising from 20,62,357 units to 21,68,151 units with an rise rate of 5.13 per cent. These effects of an increased vehicle sales is expected to perforate into 2018, as the Asian Development Bank suggested, that India's economy is calculated to grow at 7.4% in the fiscal year 2017-18 as compared to a growth rate of 7.1% in the preceding fiscal year.

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