Budget: Commercial vehicles get a booster shot

Budget: Commercial vehicles get a booster shot

India’s automobiles industry, which is one of the most important sectors in its consumption story, received enough attention from the Union Budget. The announcements in the Union Budget are likely to improve sales volumes in such a manner that the recovery in the sector will be swifter in the coming quarters than what was seen in the past two quarters.

The two key budget announcements for the sector are new schemes for the public bus transport services and introduction of the voluntary scrappage scheme.

The impact will be the highest on commercial vehicles followed by passenger vehicles. The government’s new scheme will be launched at the cost of Rs 18,000 crore to support augmentation of public transport. The scheme will facilitate deployment of innovative public-private-partnership (PPP) models to enable private sector players to finance, acquire, operate and maintain over 20,000 buses. Despite the recovery in the several segments of the commercial vehicles, the recovery in the bus segment remains linked to rules of social distancing and complete halt of incremental buying by school, which is one of big contributors of new bus purchases.

In the first nine months of FY21, sales of medium and heavy commercial vehicles dropped by 91% to 2,578 units according to SIAM data. The new scheme may reinvigorate the sales volumes of

and . These companies are top players in the bus market in India.

Beside this, the voluntary scrappage policy will strengthen the replacement buying of commercial vehicles. In the past two months, fleet utilisation has improved to 90-100% and stress on the financial fleet operators was not as severe as expected. According to industry estimates, there are about 17 lakh medium and heavy commercial vehicles, which are more than 15- year-old and plying without a valid fitness certificate. These vehicles are likely to generate incremental replacement demand.

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