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Budget misses scrappage policy which is key for CV revival, says industry

Icra maintains a stable outlook for the domestic CV industry, expecting it to grow in the range of 7-9% during FY2020

T E Narasimhan  |  Chennai 

tractor, agriculture, rural india

Belying the hopes of commercial vehicle (CV) makers, the much-awaited policy of scrapping old vehicles was missing in the Budget.

The industry said if the policy was announced, it would have taken 28 million vehicles bought before March 2005 off the road. The vehicle-scrapping policy was given “in-principle” approval at a high-level inter-ministerial meeting at the Prime Minister’s Office to pave the way for scrapping commercial vehicles (CVs) from April 1, 2020.

Rajan Wadhera, president, Society of Indian Automobile Manufacturers (Siam), and president, automotive sector, Mahindra & Mahindra, said “The industry had expected that a voluntary scrappage policy would be announced.”

While Ashok Leyland and Tata Motors declined to comment after the Budget, Ashok Leyland Chairman Dheeraj G Hinduja stressed the need for a scrappage policy and other favourable ones to revive growth in the CV industry.

The government and industry bodies should work on a long-term direction or a policy guideline for the growth of the industry, adding this would provide an impetus to the CV sector to transit to the global premier league and also help optimise resources, he told in his letter to shareholders. “The government and industry bodies should provide a long-term direction or a policy guideline to the auto sector that includes policy pronouncements such as vehicle scrappage, cab code or bus body code,” he said.

Satyakam Arya, managing and chief executive officer, commercial vehicle, Daimler India, said the need of the hour was to get the latest technology to reduce the impact of pollution on the environment and reduce the dependency on oil.

He said 10-12 BSVI trucks would produce the same level of NOx and PM (most harmful pollutants) as 1 BSIII truck. With a 28 per cent good and services tax, CVs are in the category of luxury goods. Reduction the rate to 18 per cent and making GST simpler in day-to-day use will help bring in more efficiencies in logistics operations, he said.

Meanwhile, the industry hopes that the government’s other measures would give some push to the CV demand.

The government’s proposal to invest Rs 100 trillion in infrastructure over the next five years, complemented by initiatives such as BharatMala, will not only bridge the rural urban divide but will also have a positive impact on the commercial vehicle economy and in particular will give a boost to the tipper segment, said Arya.

Continued thrust on investment in infra development is expected to boost tipper sales. With over a lakh kilometer of road and highways to be upgraded, this should increase the demand for high-powered and more efficient trucks. Capital infusion into banks will boost lendings to NBFC and will put them in better health and this could help the CV industry, he said.

Ashok Hinduja, chairman, Hinduja Group (India), wrote in a column that continuing the momentum on the construction of highways with an allocation of Rs 140,000 crore investment, upgrades in railways, metro and waterways as well as the various incentives provided for low-cost housing are certainly going to support cement, steel and construction material industry. “We hope to see a good impact on the commercial vehicle sector,” he said.

ICRA stated that demand environment will gradually improve over the next three quarters aided by recovery in demand from construction sector.

Additionally, with expectation of almost 10-12 per cent increase in vehicle cost for BS-VI compliant vehicles, there is expected to be pre-buying by large fleet operators ahead of BS-VI implementation in April 2020.

ICRA maintained it stable outlook for the domestic CV industry, expecting it to grow in the range of 7-9 per cent during FY2020. However, the outlook for FY2021 remains muted especially in absence of visibility on the likely implementation of the scrappage policy as envisaged earlier.

First Published: Sun, July 07 2019. 16:14 IST
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