Better roads, rural uplift drive auto sector hopes

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New Delhi | Published: March 1, 2015 12:06:46 AM

India’s automobile sector, which has started exhibiting some signs of recovery, might have much to cheer about in fiscal 2016...

Rural infrastructure, better roads, automobile sector, auto industry, union budget, union budget 2015Arun Jaitley said on Saturday that his government was setting aside around Rs 70,000 crore for expanding India’s road network.

India’s automobile sector, which has started exhibiting some signs of recovery, might have much to cheer about in fiscal 2016 due to a slew of measures announced by finance minister Arun Jaitley during his Budget speech.

Jaitley said on Saturday that his government was setting aside around R70,000 crore for expanding India’s road network. As per industry observers, development of India’s road infrastructure will help fleet owners of commercial vehicles improve their utilisation levels, besides an increase in commercial vehicle sales. This will be a major boost for the country’s auto industry.

At present, fleet utilisation in India stands at around 60-65%, and analysts say it could go up to 85-90% once the mining, infrastructure and manufacturing activities pick up, thereby boosting demand for commercial vehicles.

Sanjay Singh, senior research fellow at the Indian Foundation for Transport Research and Training, said vehicles in India run 300-350 km per day on an average, compared to an average of  500-600 km in other emerging countries, which have better road networks. In developed countries, these buses and trucks travel up to 900 km on a particular day.

The government’s endeavour to develop the quality of life in rural areas by taking steps like hiking the allocation under Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) will also play a significant role in boosting the demand for cars and two-wheelers in these areas. “A strong focus on rural development, including substantial allocation under MGNREGA, would ensure improved demand from non-urban centres, which benefit the auto industry,” said Vikram Kirloskar, vice-chairman of Toyota Kirloskar Motor.

In an effort to push its ‘Make in India’ agenda, the government has also raised the import duty on commercial vehicles having a capacity of carrying more than 10 passengers from 10% to 20%.

This may not have a significant impact on the Indian market since the proportion of foreign-made commercial vehicles plying in India in the overall market is extremely low. Sources in Tata Motors opined, “We do not see any impact on us as we have complete local production. This move will only facilitate the Make in India effort.”

“There is no significant import of commercial vehicles into India. The industry was expecting this hike,” said Pawan Goenka, president of the automotive and farm equipment sectors at Mahindra & Mahindra.

Auto sectors analysts say Eicher Motors might be adversely impacted by this development, as they import commercial vehicles manufactured by Volvo into India.

Cars are also set to become expensive in India, like many other consumer durables, due to the hike in excise duty to 12.5% from 12.36%, but carmakers do not expect this to have any bearing on sales volumes.

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