Demand Revival: Niti Aayog may recommend govt to purchase 60,000 buses

In the global financial meltdown year 2008-09 and later in 2014-15, the government had bought/sanctioned purchase of a total of over 22,500 buses under JNNURM (later renamed as AMRUT). The said purchase aided auto majors like Tata Motors, Ashok Leyland and Volvo to boost their sales. 

By:July 29, 2020 10:39 AM

The Niti Aayog may recommend that the government purchase 60,000 buses in order to stimulate consumption demand in the economy. If implemented, the proposal would entail public expenditure to the tune of Rs 20,000 crore and catalyse the revival of the faltering medium & heavy commercial vehicles (M&HCV) sales. Such auto sales declined 42% annually in FY20. In the global financial meltdown year 2008-09 and later, in 2014-15, the government had bought/sanctioned purchase of a total of over 22,500 buses under JNNURM (later renamed as AMRUT). These purchases were efficacious fiscal stimuli and aided auto majors Tata Motors, Ashok Leyland and Volvo to boost their sales. However, it is not clear if the government will choose the bus purchase route now, given that its fiscal deficit in the current fiscal is seen to double from the budgeted level of `8 lakh crore even to maintain the budgeted level of expenditure. Though the extra budgetary cost of the Aatmanirbhar Bharat Abhiyan package is estimated at around Rs 2 lakh crore, the expenditure curbs imposed on ministries for the first and second quarters could effectively offset this.

While the think tank feels procurement of buses may be largely funded by the Centre, state governments may also have to chip in, via their road transport corporations. The procurement of a large number of buses by the government would give a boost to the crisis-ridden automobile sector and help revive economic activity in the related sectors, sources said. Funding support to purchase buses will also be linked to reforms in urban transport bodies, they added.

“Medium & heavy commercial vehicles (trucks and buses) sales declined 42% y-o-y in FY20….. the industry is staring at further de-growth as Covid-led economic downturn adds to the negative sentiment,” CARE Ratings said in a note. The Indian commercial vehicle industry is one of the largest domestic industries with strong backward and forward linkages with other allied sectors.

Officials have indicated that the next round of fiscal measures is expected by September-October, coinciding with the festival season. According to a Niti Aayog report, India has only 1.2 buses per 1,000 people, much below developing-nations benchmark. There is also big disparity among states in this regard— 3.9 buses for 1,000 people in Karnataka versus 0.02 in Bihar. Only 63 of 458 Indian cities of more than 100,000 population have formal city-bus systems. Within this, only 15 cities have either a bus or a rail-based mass rapid transit system. Hosting about 30% of India’s population, cities contribute 50-55% of the country’s GDP.

Under the JNURM scheme, central assistance was up to 50% and state governments’ share was up to 30%, depending on the population of the cities for which buses were procured. Some portion of the finance was arranged by the municipal bodies or transport corporations or via loans. The Centre’s share was, however, as high as 90% for the hill and North Eastern states.

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