Vehicle sales up for the third consecutive month

New Delhi: The sales of trucks and buses, a leading indicator of economic activity, rose for the third straight month—the first time in more than two years—although the rate of expansion slowed.

Sales of commercial vehicles in India grew 5.3% to 52,481 units in January from a year ago and after rising 9.05% in November and 9.01% in December, according to Society of Indian Automobile Manufacturers (Siam), an industry lobby group.

Sales of cars also grew for a third month in a row to 169,300 units, up 3.14% from the year-ago period. However, the industry remains worried about weakening rural demand, which has affected sales of motorcycles in the country, which declined 5.85% to 868,507 units.

There are two sales trends in motorcycles, said Vishnu Mathur, director general, Siam.

“First, urban demand for two-wheelers seems to be shifting in favour of scooters,” he said. “Second, a large part of motorcycle sales come from rural areas and demand in those areas is a bigger concern for us.”

A delayed and deficit rainfall hurt the summer crop and crimped farm incomes. In October, the government raised the minimum support price (MSP) for wheat and rice in the range of 3-4%—the lowest in recent years.

The January numbers were a pleasant surprise, according to Anil Sharma, research analyst with forecasting firm IHS Automotive.

“The numbers are good; even commercial vehicles despatches are also positives. First month after several months, we are seeing both passenger and commercial vehicles in the green,” Sharma said. “We are expecting some sort of vacuum effect to take place in January as people advanced their purchase decision in December to take advantage but it has not really happened.”

Concerns regarding a second consecutive annual decline in passenger cars are over and the segment is likely to grow between 3% and 5% in the year to 31 March, Mathur said.

Between 2010 and 2012, car sales were growing in the range of 20-25% on a sequential basis. Economic growth slowed to sub-5% levels in each of the past two years, while borrowing costs have been kept high to cool inflationary pressures, hurting consumer demand.

However, the central government said on Monday that Indian economy is likely to grow at 7.4% in the current fiscal year based on a debatable new method, estimated to be on par with China.

It is also the first time that the economy is projected to be bigger than $2 trillion; India’s GDP is estimated to be $2.1 trillion in 2014-15.

The new government has initiated a set of reforms to kick-start growth. Since the National Democratic Alliance (NDA) government came to power in May, it has opened up railways, defence, insurance and construction sectors to more private and foreign investments. It has allowed 100% foreign direct investment (FDI) in railway infrastructure, increased the cap on FDI in the defence business and insurance sectors to 49% from 26%, and eased FDI rules in the construction sector.

It is also looking to raise Rs.58,425 crore this fiscal year through stake sales in state-owned companies that include Coal India Ltd, Oil and Natural Gas Corp. Ltd and NHPC Ltd.

A crucial step will be the introduction of the goods and services tax, Mathur said. “GST will bring a lot of clarity and will put to rest a lot of duty-related issues,” he said.

However, the new indirect tax regime is unlikely to be implemented before 2016.

“Until then, the right way is to reduce duties across the board, the way we did in 2008,” Mathur said.

Excise duty on small cars, scooters, motorcycles and commercial vehicles was reduced in February last year to 8% from 12% previously by then finance minister P. Chidambaram.

Mathur expects a uniform reduction on the entire supply chain. “If you can’t reduce the duty rates across the board, then look at reducing duties on high-end vehicles, where the duties are very high,” he said.

The situation is likely to improve from here with the Reserve Bank of India expected to bring in more liquidity in the market by reducing interest rates, Sharma said.

“I believe from the first quarter of fiscal year 2016, industry will see some good growth,” he said.

Mathur said he expects government to roll out the national mission for electric mobility with some initial fund allocation besides some incentives for fleet modernization programme, which is likely to create fresh demand in the market.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.