Similarly, the 60 per cent depreciation allowance for a new vehicle purchased against the sale of a condemned one should also help generate fresh purchases. The government, however, will do well to define a "condemned" vehicle prior to making it a regulation. Now, given that a condemned vehicle is defined as anything over 15 years as was reported, a blanket ban on all vehicles over 15 years could lead to a severe backlash, the connotations of the which could also be misinterpreted for cars and two- wheelers, which the government will be keen to avoid.

More importantly, the government should address the fundamental problem that plagues buyers, which is the difficulty in getting the requisite funds at cheap interest rates, especially since most of the SRTCs and state governments continue to be in poor financial health. This is the prime reason that had forced auto companies to restrict exposures to suchentities in the first place. This is where the government hopes that the provision of an escrow-account mechanism by the buyer would facilitate enough security, especially since neither the lending non-banking finabce company nor the auto manufacturer will now have to worry about possible defaults. However, the successful implementation of this proposal depends on the concerned state government or SRTCs.

But perhaps the most important piecemeal offering for the vehicle manufacturers could be the stipulation of order placements by the defence and the State Road Transport Corporation by December 31, 1998, especially since analysts estimate these orders to range between 10,000 and 15,000 vehicles, a measure which should compensate for the volume losses suffered owing to a wretched market.

Re-enforcing this point of view is the fact that a 10,000-unit order will almost account for as much as 6 per cent of the total vehicular sales (as per (1997-98's actual offtakes of 1.56 lakh units. More importantly, goingby the forecasts of flat offtakes in the commercial-vehicle segment in 1998-99, the order will now account for 10 per cent of sales. Another important aspect of the order is that the companies will now be able to rid themselves of the piled-up inventories, which will help generate free cash flow.

Furthermore, how the order will effect the fortunes of the manufacturers will also depend on the category of the vehicle chosen. But given that these vehicles would probably be used for the armed forces and various state governments' utility, the offtakes will in all probability be in the MCV and HCV segments. This will boost earnings, more so since the producer enjoys larger margins in that segment. Another aspect of the order which needs to be analysed is that companies will now be able to rid themselves of the piled-up inventories, which will help generate free cash flow.

Thus, what all these measures proposed by the finance minister will do is provide some much-needed relief for players like Ashok Leyland andTelco. However, a revival of the commercial-vehicle segment is not on. More so, since long-term demand for vehicles will only increase when the volume of freight movement rises adequately to bridge the supply gap. This, in turn, will improve profitability, spur demand and encourage NBFCs to lend. All this clearly reflects that a turnaround in this sector is heavily dependent on an overall economic revival. More importantly, the prospects for the sector look increasingly bleak, owing to the increasing popularity of transportation by the railways, which is only hampered by an inherent lack of wagons.