Sluggish commercial vehicle sales in India to continue amid slowdown, regulatory changes

15, Jan. 2020

Delivery trucks carrying goods on the Srinagar-Jammu national highway in the Indian union territory of Jammu and Kashmir on Jan. 9, 2020. (PTI)
Delivery trucks carrying goods on the Srinagar-Jammu national highway in the Indian union territory of Jammu and Kashmir on Jan. 9, 2020. (PTI)

By Atul Ranjan

NEW DELHI, NNA - The near-term outlook for the struggling commercial vehicle (CV) sales in India remains subdued amid economic slowdown and regulatory changes, said the industry body Society of Indian Automobile Manufacturers (SIAM).

The latest data released by SIAM last Friday shows CV sales fell 21.09 percent to 570,702 units between April and December 2019 compared to the same period the year before.

This was led mainly by poor sales of medium and heavy commercial vehicle (MHCV) which plunged by 36.69 percent.

The dismal performance of commercial vehicles was the worst among the four vehicle sectors in India.

Sales of passenger, three-wheelers and two-wheelers dropped 16.4 percent, 2.7 percent and 15.8 percent respectively during the corresponding nine-month period.

Rajan Wadhera, SIAM president, attributed the poorer sales of MHCVs to the slowing economy and regulatory changes like the increased axle load norms which increased freight capacity of trucks by 25 percent. Axle load norms are used in regulating the goods carrying capacity of transport vehicles.

“Growth in commercial vehicle industry is dependent on the gross domestic product growth, but it’s not happening and is impacting the demand,” Wadhera told reporters on last Friday while releasing Q3 (Oct.-Dec.) auto sales numbers.

He said with the more stringent BS VI low-emission regulation kicking in on April 1 this year, CV prices are expected to increase by approximately 8 to 10 percent, further adding to the woes of the sector. The new regulation to curb pollution is equivalent to the internationally recognized European Union's Euro-VI norm.

The price increases will have a huge impact on near-term demand, said Wadhera.

Last week, the Indian government said it expects the economy to grow at 5 percent in the current fiscal year, lower than the 6.8 percent growth recorded last year.

Meanwhile, credit rating agency ICRA Ltd., a unit of Moody’s Investors Service Inc., said in its latest report that economic headwinds would continue to depress CV demand in the near-term.

“Excess capacity created in the system post revision of axle load norms in July 2018, coupled with slowdown in the economy and infrastructure projects and the resultant lower freight availability continue to weigh on the demand prospects,” ICRA said in its Jan 3 report.

As these factors could affect cash flows of fleet operators, the demand for new vehicles as replacements is likely to remain sluggish till the economy and infrastructure projects see an upswing.

“Improvement in economic environment and resolution of liquidity constraints remain critical for a sustained revival in the industry,” said ICRA.

“In absence of either, the ratings agency maintains a subdued outlook for the industry for the next fiscal,” it added.