Picking Up Tempo Again

The domestic commercial vehicle (CV) industry, a barometer of the economy, had a whirlwind start to 2017/18. In the last months of the previous year, it was gearing up for transition to the stricter BS IV emission norms, and was at loggerheads with the green watchdog, the Environment Pollution Control Authority, on whether vehicles manufactured during the year and complying with BS-III norms could be registered in the new financial year. A truck or a bus manufactured at a factory can take up to a month or more before it is sold to a customer. At the 11th hour, March 30 to be exact, the Supreme Court ruled that no vehicle not complying with the latest norms could be registered from April 1. This led to a mad rush to liquidate stocks - nearly 1,00,000 trucks, buses and light commercial vehicles, more than half of them as bare chassis, worth over Rs 5,000 crore. The discounts that had to be offered meant that manufacturers and dealers took a substantial hit. The sector was in deep distress.

"Financial year 2017/18 was the bloodiest of bloodbaths in the history of India's commercial vehicle sector," says Vishnu Mathur, Director General of the Society of Indian Automobile Manufacturers.

Manufacturers had few options left to them after the shift to higher emission standards. They could upgrade or export to markets in Africa and Latin America that allow sale of BS-III commercial vehicles. But it was not an easy choice. "One cannot simply ship a truck meant for Vijayawada to Lagos (Nigeria) with minor changes," says an industry major.

If you were to tell any truck maker then that the fiscal would turn out to be the best ever for him, he would have laughed in your face. But that is exactly what happened. In 2017/18, commercial vehicle sales grew nearly 20 per cent at 856,453 units, well past the annual peak of 809,499 units in 2010/11.

Surprising, as things didn't get easier even after the BS IV fiasco. In fact, more shocks were in the offing during the course of the year. More losses came when what was traditionally categorised as 'perennial demand' from State Transport Undertakings, or STUs, fell. The reason was simple. The Centre - it foots the bill for changes in bus fleets - is going ahead with electrification of public transport. The move, under the Jawaharlal Nehru Urban Renewal Mission, is adversely affecting demand for diesel and CNG buses bought by STUs, and may well force the industry to move more aggressively towards electric vehicles. To make matters worse, the Department of Heavy Industries made a policy U-turn on funding fleet renewal in states. Instead of part-funding capital expenditure for fleet expansion, the department now wants to part-fund only running costs or operational expenditure of STUs.

The Goods and Services Tax, the biggest tax reform, also did not provide much succour. While the industry was hoping for a tax rate of 18 per cent (which would have meant reduction in prices), the government hit them with the highest tax slab - 28 per cent. Experts hold that though the new system was likely to make goods movement efficient in the long term, it was responsible for a reduction in CV demand in the short term. Industries that use heavy trucks were also not exactly firing on all cylinders. While infrastructure and road construction had picked up steam, demand from real estate and mining industries was sluggish.

"Demand for CVs was subdued for most of the year. The last few months of the fiscal, however, did witness some improvement that helped close the year with double-digit growth," says Mathur. The 20 per cent volume growth was led by a 12 per cent growth in sale of heavy trucks and buses and 25 per cent growth in sale of light commercial vehicles.

Industry expert V. Sumantran believes that the light segment numbers are a story within the industry. "This is a new kind of demand," he says about India's growing e-commerce businesses that have created a demand for small trucks such as Dost (Ashok Leyland) and Ace (Tata Motors). With consumers requiring doorstep deliveries, there has been a definite surge in demand.

With increased asset utilisation - there is smoother movement of trucks between states after GST - there will be short-term suppression of demand, says Sumantran, but contends that the "long-term benefits to manufacturers will far outweigh it".

There is likely to be a similar positive effect when the new e-way bill system is in place all over India. The system has already been implemented in several states.

"The auto industry will continue witnessing healthy growth as disruptions caused by various policy implementations (demonetisation, ban on BS-III vehicles, GST, rate revisions) have almost moderated. Demand is expected to improve on the back of various initiatives taken by the government in the Union Budget 2019 for agriculture and infrastructure sectors," says a recent CARE Ratings report.

The sector is also optimistic about a better year this time after the Centre recently approved the Bharatmala project. The `7 lakh crore project envisages building over 83,000 km roads by 2022. The increased need for commercial vehicles in this scenario is a given.

The Care Ratings report concludes, "..along with improvement in construction and mining activities, higher demand from e-commerce and FMCG industries is expected to give a fillip to the commercial vehicles segment going forward. Also, in order to take polluting commercial vehicles off road, the government may fix 20 years as the lifetime of the commercial vehicles. The vehicle scrapping policy is expected to come into force from April 1, 2020. This is expected to give a further boost to sales in the country." From deep pessimism to super optimism, it has been a roller coaster ride for the CV industry. And again, that somewhat mirrors the state of the overall economy.

The writer is a freelancer based in Bangalore