'Regulate, dont stimulate further'

Written by Yogima Seth | Neha Pal | New Delhi | Updated: Apr 3 2009, 05:08am hrs
Venu Srinivasan, managing director, TVS Motor and the newly elected president of CII, feels that on the back of the two stimulus packages offered by the Centre, in December and January, to boost sales in the auto sector, two-wheelers will register a growth of 3-5% while passenger cars will grow by 5-8% in 2009-10. Earlier, the industry estimate was of a flat to a slightly negative growth.

However, Srinivasan feels it will not be before April next year that the commercial vehicle segment will show any significant improvement because of slowdown in the domestic as well as global economy.

After a significant decline in November and December, demand for automobiles have picked up since January across all segments. The stimulus packages have led to faster releasing of funds under JNNURM for renewal of buses and have resulted in lower interest rates. This, coupled with reduction in excise duty has made vehicle purchase more affordable in the last two months, he said, adding that a low single-digit growth in two-wheelers and slightly higher growth in passenger cars could be expected. According to the Society of Indian Automobile Manufacturers, all segments witnessed a growth in February on a month-on-month basis, signaling a reversal in trend. While total sales went up by 8.9% in February as compared to 7,68,622 units in January, passenger vehicles registered a growth of 5.63% compared to 1,37,284 units in January; sales of two-wheelers jumped by 8.4% in February vis--vis 5,81,742 units in January.

Srinivasan feels that sales of commercial vehicles will not rebound on sustainable basis, at least in the near future. Commercial vehicles are more difficult to predict because its a cyclical product and any change takes at least 18 months to have an impact, he said. Srinivasan opined that the government should focus on regulations and good infrastructure instead of a third stimulus package to revive the sector. He said that the absence of proper regulations for repossession of vehicles has led to a sharp dip in availability of funds, as major financial institutions have withdrawn from the sector, especially in case of two-wheelers.